In Uncategorized on 12/05/2019 at 18:04

Judge David Gustafson, ordinarily a patient man, is draining his tank with Alan David Cooper, Docket No. 4123-19, filed 12/5/19, a designated hitter. Judge Gustafson Crained Alan for 25 of the 26 years he petitioned; the one survival is the year at issue. Alan is apparently a fan of Peter Hendrickson, author of the Protesters’ Bible; for the skinny on Pete, see my blogpost “Cracking Up,” 2/27/14, when Judge Buch devoted 63 (count ‘em, 63) pages of opinion to skewering Pete’s masterpiece.

So now IRS wants summary J for the $2400 in tax and $239 in chops that Alan owes, plus a Section 6673 frivolity chop to cool Alan’s ardor for Pete and his work. Judge Gustafson told Alan to come forward with non-frivolity on the tax and chops, to rebut IRS’ assertions.

Of course Alan didn’t. That would be too easy.

Instead, Alan “…asked the Court to issue ‘an order to dismiss this case without prejudice in this matter to either side.’ We believed it was possible that this might be Mr. Cooper’s attempt to concede the case, which would have rendered moot the Commissioner’s motion on the merits. However, Mr. Cooper’s inclusion of the phrase ‘without prejudice’ seemed (depending on what he meant by it) problematic under section 7459(d) (discussed below).” Order, at p. 3.

Trust Judge Gustafson to seek, with almost the fervor of Diogenes, for meaning. He told IRS to respond, and Alan can riposte with an explanation of what he means by “without prejudice.” It seems Alan was confused about IRS’ response, because he claimed IRS ignored his response, except that he didn’t respond the second time.

Howbeit, now Alan wants “…to use another forum (a CDP hearing that he believes he can obtain) to maintain his challenge against the IRS’s determination of his [year at issue] liability. We cannot see, from what he states, that a CDP hearing could be actually available to him or that, if it were, he would be able to challenge his [year at issue] liability in such a hearing, since he received an SNOD for [year at issue] (see sec. 6330(c)(2)(B)).” Order, at p. 5.

This move will not help Alan.

“But whether or not a CDP hearing for [year at issue] could be available to Mr. Cooper, and whether or not section 6330(c)(2)(B) would bar a liability challenge in such a hearing, we must deny his motion to dismiss this case ‘without prejudice’, by which he evidently means that the dismissal of this case would leave him without any loss of the right to litigate elsewhere his [year at issue] income tax liability.” Order, at p. 5.

Of course my readers know that, if Alan timely petitioned a valid SNOD, the only legally permissible dismissal of his case would be a decision in favor of IRS for the entire deficiency, per Section 7459(d). And Alan would have given away his only chance to contest liability. The quid pro quo, of course, is to get the automatic stay of collection while a deficiency proceeding is pending, you have to win or go home. There are no free temporary restraining orders in Tax Court. You can’t get the stay, drop the case, and try again.

But Alan isn’t done yet.

Alan also separately moved “…’to dismiss and/or vacate this case with prejudice in this matter against Respondent’ (emphasis added). If this means we should dismiss the case without redetermining the deficiency, then the second motion must be denied for the same reason as the first motion–i.e., section 7459(d). If the motion asks us to sustain the SNOD and to redetermine the deficiency as zero because of respondent’s supposed misbehavior, then we must also deny the motion on that ground. In the first place, the status report does not reflect the wrong-doing that Mr. Cooper supposes; but even if it did, he does not cite any authority for the proposition that, as a sanction for respondent’s supposed misbehavior in the litigation, we could determine a zero deficiency in the petitioner’s income tax. We will not do so.” Order, at p. 6.

As aforesaid, IRS wants a Section 6673 frivolity chop. And Judge Gustafson warned Alan he was pushing hard, especially with this transparent attempt at a strategic retreat to buy time via a CDP.

Judge Gustafson could nail Alan, but this is the first time Alan is in USTC, so he gets the yellow card.



In Uncategorized on 12/05/2019 at 16:21

No, I’m not ordering two shots of a joint venture between The Lairds of Kilmarnock and Lem Motlow’s outfit; although that would be a fascinating whiskey.

This is the story of Earl A. Skarky, Docket No. 1727-18, filed 12/5/19, an off-the-bencher from ex-Ch J Michael B (“Iron Mike”) Thornton. It’s yet another horse tale, albeit not a hobby horse. Still and all, to my good friend and colleague Peter Reilly, CPA, gib a’ kook, as Grandma would say.

Earl was a mandatorily-retired heavy-hitter in an OK law firm. Earl moved to Lexington, KY, and bought the farm. Not in that sense, of course. He bought a 55-acre farm and started acquiring and disposing of various horses, claiming he wanted to start a horse-breeding venture.

Alas, “…petitioner had acquired 13 horses from the Humane Society. He did not intend to sell these horses, and [immediately before year at issue] he had disposed of all but one of these horses and had acquired two Tennessee  Walkers. At that time he also had five horses that had been retired from his wife’s therapy business in Washington State. Of these five horses only one was a potential breeder but because of health issues it had to be gelded.” Transcript, at pp. 4-5.

Tennessee Walker is apparently some breed of horse that never winds up in the daily double, so I can’t tell you any more about them. Earl did buy two mares in foal and started training their offspring, but they hadn’t done anything in the year at issue except get bridle-trained by a trainer Earl hired. Earl did buy a stallion (type unspecified) that year. In subsequent years, Earl bought some retired police horses (all gelded) and two Clydesdales.

Earl did claim a $1.4 million farm loss for the year at issue, based on $3250 of income from boarding a couple horses (hi, Judge Holmes), and a bunch of depreciation, Section 179 quick write-offs, and his commuting expenses from Lexington to OK to do some work at his old firm.

Earl had a residence in OK, showed up once a month for a week there to service his old client, and earned his real money there. Hence his tax home is OK, not KY, so no deduction for travel.

Earl’s trial testimony obviates the need for ex-Ch J Iron Mike to trudge through the “goofy regulation,” 1.183-2(b).

“As of [year at issue] petitioner had not yet sold any horses from his breeding activity. In fact, as of [year at issue] petitioner was still uncertain what type of horses would be best to breed and was still investigating different possibilities. As of the time of trial, petitioner has not entered into any breeding agreements and has not received any fees for breeding horses. Petitioner testified that he hoped his horse-breeding activity would become operational by 2020.” Transcript, at p. 5.

Clearly Earl is neither a trial lawyer nor a tax lawyer, or he might have deduced that that testimony sank him without trace. Note that the trial took place five (count ‘em, five) years after the year at issue.

Ex-Ch J Iron Mike don’t need no factors. This isn’t a hobby loss, this is a start-up.

“Until the activity is functioning as a going concern and performing the activities for which it was organized, expenses related to that activity, including depreciation expenses, are not ‘ordinary and necessary’ expenses’ currently deductible under section 162 (nor are they deductible under section 212) but rather are ‘start-up’ or ‘pre-opening’ expenses. See Hardy v. Commissioner, 93 T.C. 684, 687-688 (1989); Piggly Wiggly Southern, Inc. v. Commissioner, 84 T.C. 739, 745-746 (1985) (citing Richmond Television Corp. v. United States, 345 F.2d 901 (4th Cir. 1965), aff’d, 803 F.2d 1572 (11th Cir. 1986)). ‘Start-up expenditures’–i.e., expenses incurred ‘before the day on which the active trade or business begins,’ sec. 195(c) (1) (A) (iii)–may be deducted only over time under section 195. The costs of starting up a new trade or business or a new income-producing activity are inherently capital because they are expenses of creating or acquiring a capital asset. See Johnsen v. Commissioner, 794 F.2d 1157, 1162 (6th Cir. 1986), rev’g, 83 T.C. 103 (1984).” Transcript, at pp. 10-11.

Whatever their success at breeding, training, buying or selling, these horsey types provide great blogfodder.


In Uncategorized on 12/04/2019 at 17:52

I’ve repeated more than once the remark made by an old-time stick-and-string racing yachtsman, who survived a hurricane off Bermuda, and wrote about how he survived it. “Six months after, someone sitting in your warm, dry and safe livingroom, with the second glass of your whiskey in his hand, will tell you what you should have done.”

Well, I won’t place Judge Goeke in an analogous position, but in Charles V. Fortin, Docket No. 22406-18W, filed 12/4/19, Judge Goeke tells the Ogden Sunseteers, who didn’t exactly cover themselves in glory in Richard E. Lacey II, what they should have done.

For the Lacey contretemps, see my blogpost “The Whistleblower Office – Blown,” 11/25/19.

“Petitioner filed a whistleblower claim with the Internal Revenue Service’s Whistleblower Office (WO)… alleging that taxpayer A failed to properly report petitioner’s receipts on Form 1099-K, Payment Card and Third Party Network Transactions, and petitioner’s Form reported income that belonged to taxpayer A and should have been reported on taxpayer A’s Form 1099-K. The WO referred petitioner’s claim to an employment tax specialist who determined that petitioner’s claim did not present any tax issues and taxpayer A correctly reported gross receipts on Forms 1099-K.” Order, at p. 1.

Whereupon the Ogden Sunseteers bounced Charles’ Form 211, and Judge Goeke gives IRS summary J bouncing Charles’ petition.

Lest I be misunderstood, I’m not saying the Ogden Sunseteers should just be an open shower, pouring every off-the-wall story and every serial blower’s cut-and-paste from the public record onto the heads of the operating types. That would be just as arbitrary as sending nothing to operations, claiming nothing collected, and bouncing every blower, meritorious or not.

But here was at least a germ of a claim, so on it went. And the employment tax subject matter expert had the chance to vet it and decide to pursue or forebear.

Charles went a little too far.

“In his petition, petitioner asks the Court to issue a directive to taxpayer A to correctly report gross receipts on the information returns and to restore his whistleblower claim.” Order, at p. 2.

“Petitioner seeks to litigate whether taxpayer A properly reported receipts on information returns and restore his whistleblower claim. However, in whistleblower cases, we have jurisdiction only with respect to the award determinations. See sec. 7623(b). We do not have jurisdiction to determine whether taxpayer A violated tax law or to review taxpayer A’s reporting obligations. Nor do we have authority to direct the IRS to commence an examination or action against taxpayer A on the basis of petitioner’s whistleblower information.” Order, at p. 2. (Somber reasoning and copious citation of precedent omitted).

If someone hits you with income you don’t want, blowing the whistle on the hitter is a novel approach, but don’t try this at home (or anywhere else). I can just see the protester-defier crowd dropping Forms 211 on those who send the 1099s that get them hauled.

Judge Goeke closes with a statement that the Ogden Sunseteers did the right thing.