Attorney-at-Law

LEG BEFORE WICKET – PART DEUX

In Uncategorized on 10/20/2017 at 15:48

It’s caused more trouble at matches than the late arrival of tea without jam for the scones. It’s an ancient rule that goes back to the Eighteenth Century, to deter batsmen from deflecting the wicket-bound ball with pads, to avoid being bowled out.

If all the foregoing is unintelligible to you, go back to watching the Yankees and Astros.

Today it features analogically in Steven W. Webert & Catherine S.  Webert, Docket No. 15981-17, filed 10/20/17, and Ch J L Paige (“Iron Fist”) Marvel has to deal with what might become a full-dress T. C. when it grows up.

The Weberts petitioned SNODs for five (count ‘em, five) years, for which IRS claims the Weberts didn’t file returns.

So based on SFRs maybe, but Ch J Iron Fist doesn’t say.

Two days after the SNODs went out, the Weberts filed returns for the five years, but didn’t pay. Before IRS answered, the Weberts moved to restrain collection per Section 6213(a). Then IRS answered, moving to collect the self-reported taxes.

IRS says a deficiency is the shortfall between what is shown on a return and what tax is due. But there is no difference between what the Weberts showed on the delinquent returns that IRS processed, and what is due, so there is no requirement to issue a SNOD to assess tax. Thus IRS can go collect.

Ch J Iron Fist: “I.R.C. section 6213(a) provides that respondent generally is precluded from assessing or collecting a deficiency until after the mailing of a notice of deficiency authorized by section 6212 and the expiration of the period for filing a timely petition for redetermination. Meyer v. Commissioner, 97 T.C. 555, 560 (1991). If the taxpayer does file a petition with this Court, respondent is further precluded under section 6213(a) from assessing or collecting the deficiency until the decision of this Court becomes final. Id.; see also I.R.C. sec. 6215(a).

“With respect to this Court’s jurisdiction to restrain assessment and collection of a deficiency, section 6213(a) provides, in pertinent part:

“Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in * * * the Tax Court, and a refund may be ordered * * * of any amount collected within the period during which the Secretary is prohibited from collecting * * * under the provisions of this subsection. The Tax Court shall have no jurisdiction to enjoin any action or proceeding or order any refund under this subsection unless a timely petition for redetermination of the deficiency has been filed and then only in respect of the deficiency that is the subject of such petition. [Emphasis added.]” Order, at p. 2.

So, IRS, supplement your answer by explaining which tax assessments you’re going after, the first batch the Weberts petitioned or the ones from the late-filed returns.

For procedure junkies, this case should be real fun.

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WIPE OUT

In Uncategorized on 10/19/2017 at 16:08

No, not the 1963 Surfaris’ immortal instrumental that encapsulated California surfing. This is the story of how IRS wiped out one year’s shortfall with a supposed overpayment in another year (that latter year not being before the court), but discovered arithmetic errors that nullified the supposed overpayment, so wiped out the previous wipe out.

Wendell C. Robinson and May T. Jung-Robinson, 2017 T. C. Memo. 207, filed 10/19/17, put in no evidence that their computation of tax was correct. They claim IRS needed to send them a SNOD for the unpaid tax due as a result of the wipe-out of the wipe-out.

“While in general section 6213(a) restricts the Secretary from assessing or taking action to collect any deficiency in tax until after he has mailed the taxpayer a statutory notice of deficiency, section 6213(b)(1) provides an exception for assessments arising out of the taxpayer’s mathematical or clerical errors.  The Secretary need not issue a statutory notice before assessing a tax when a ‘taxpayer is notified that, on account of a mathematical or clerical error appearing on the return, an amount of tax in excess of that shown on the return is due, and that an assessment of the tax has been or will be made on the basis of what would have been the correct amount of tax but for the mathematical or clerical error”.  See sec. 6213(b)(1).  If, however, the taxpayer requests abatement of the assessment within 60 days of the notice of mathematical or clerical error, the Secretary must abate the assessment and must use deficiency procedures to reassess.  Sec. 6213(b)(2)(A).

“Similarly, section 6201(a)(3) authorizes the Secretary to assess any payment amount overstated as estimated income tax ‘in the same manner as in the case of a mathematical or clerical error.’  However, the Secretary does not have to abate the assessment and use deficiency procedures, as he would under section 6213(b)(2)(A) if the taxpayer objects to the notice of the assessment.  Sec. 6201(a)(3).

“Under section 6665(b), the Secretary is authorized to summarily assess additions to tax under section 6651 for late filing of a return and for failure to pay the amount shown on the return.  See Gray v. Commissioner, 140 T.C. 163, 169-170 (2013).  Finally, interest is not generally subject to deficiency proceedings.  Sec. 6601(e).” 2017 T. C. Memo. 207, at pp. 17-18.

For more about the Gray case, see my blogpost “Too Late and Not Timely,” 4/25/13.

So Wendell and May get levied, and suffer a wipe out.

OFF THE HOOK

In Uncategorized on 10/19/2017 at 01:43

Now don’t get me wrong; I like accountants, generally, I really do. I’ll stop at that, lest someone claim that the laddie doth protest too much.

But a well-known accounting firm, in extricating itself from the rubble of a client’s shot-down dodge, really showed a want of stand-up.

Remember Corbin A. McNeill and Dorice S. McNeill? No? See my blogpost “Searchin’, Searchin’,” 6/19/17. Now the sequel, wherein Corb and Dori get chopped with the 40% substantial overstatement, is to be found in 2017 T. C. Memo. 206, filed 10/18/17.

This is a tale of two accounting firms, one which promoted the DAD dodge (and which firm actually did work for me years ago, but promoted no dodges) and the other which prepared Corb’s and Dori’s returns for the years at issue.

It’s the latter to which I direct your attention.

The second of the years at issue was the first when T.D. 9046, 2003-1 C.B. 614, classified Corb’s and Dori’s dodge as reportable. When it came time to file Corb’s and Dori’s return, “X concluded that Mr. McNeill should file a Form 8886, Reportable Transaction Disclosure Statement, and that X should not be listed as a material adviser because it had not provided any tax advice with respect to the 2003 DAD transaction. A ‘Loss transaction’ was indicated as the reportable transaction on petitioners’ Form 8886.” 2017 T. C. Memo. 205, at p. 35. (Name omitted).

For those unacquainted with this particular dodge, a DAD married distressed assets or debt with high cost basis but market value of bortscht, to use a technical term, to big-ticket capital gains in a tiered LLC set up, generating big tax loss with no balance sheet impact. No business purpose, no economic substance.

You’ll recall from my above-cited blogpost that Corb and Dori conceded the deficiency, but contested the chop after Judge Paris found jurisdiction.

Corb and Dori claim they relied on X, not the other accounting firm that promoted and sold the dodge. But it’s not enough that X prepared the return; X has to have given Corn and Dori advice.

“X prepared and signed petitioners’ 2003 tax return but did not give petitioners advice on the loss attributable to the 2003 DAD transaction. For both 2002 and 2003 X prepared internal memorandums that briefly analyzed Mr. McNeill’s DAD transactions. In the memorandums X looked at the transactions for a ‘realistic possibility of success’. This standard, derived from section 6694(a)(1), relates to imposing penalties on tax return preparers for understating a taxpayer’s liability. X’s memoranda reflected the standard of review to ensure it would not be penalized for the positions taken on petitioners’ returns–not that they were providing return position advice to petitioners on the DAD transactions.” 2017 T. C. Memo. 205, at p. 29.

Likewise, X did not appear on the Form 8886 report of dubious dealings, as an adviser, preparer, guide, philosopher or friend.

Now, to be fair, Corb and Dori claim they also replied upon the advice of counsel, legal-type counsel. But the lawyers in question were one of two firms hand-picked by the dodgeflogger accountants who put Corb and Dori in the DAD deal, and who churned out opinions for a piece of the action. That clearly doesn’t get it.

So if you get a memo from a lawyer or accountant with the words “realistic possibility of success” therein, ask them to keep the ripcord as a souvenir. And don’t get on that plane.

Before you weep for Corb and Dori, note that Corb was chairman and co-CEO of Exelon, another dodger. See my blogpost “1031 and All That,” 9/19/16.