In Uncategorized on 09/17/2012 at 16:21

And, A Footnote

Loretta Lea Wanat, formerly a highflyer with Northwest Airlines, doesn’t bother with tax returns for three years, the IRS assesses deficiencies, apparently without bothering with Section 6020 SFRs, Loretta Lea petitions Tax Court, and, the day before trial of the eponymous 7463, Loretta Lea hands IRS counsel purported returns for the three years at issue.

Now this should call for a “Don’t Ambush the IRS, Either”. But STJ Lew Carluzzo (the Judge who spells our name correctly), seeing the IRS didn’t use the famous Rule 70 “the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules”, decides to wade through Loretta Lea’s last-second impromptu 1040s. His exegesis is found in T. C. Sum. Op. 2012-92, filed 9/17/12.

But first he gives Loretta Lea and IRS a piece of his judicial mind: “Issues arising from deductions yet to be shown on a Federal income tax return are contemplated in the petitions filed in these cases. Ignoring what petitioner labeled as ‘preliminary’ returns submitted to respondent’s counsel after the petitions were filed, the returns on which the deductions here in dispute are claimed were not provided to respondent’s counsel until the day before trial. Sometimes late is just as bad as never.

“Petitioner’s procrastination, coupled with respondent’s restraint from using formal discovery in cases subject to a sec. 7463 election, in effect transformed one of the traditional roles of a trial, that is, to resolve factual disputes between litigants, into an exercise more in the nature of an examination of petitioner’s untimely submitted returns. A trial even as informal as contemplated under Rule 174(b) is ill suited for such purposes.” T. C. Sum. Op. 2012-95, at p. 4, footnote 3.

Loretta Lea made her beds, but it wasn’t where she lay her head; it was dog beds she made to sell. And STJ Lew gives her some deductions in that regard. Her real estate venture deductions fall apart on non-substantiation and failure to distinguish between personal and business use. And she held the realty for appreciation in value, not in a trade or business, so at best she’d have the Section 212 production-of-income deductions, but can’t prove them. There’s an appendix in which the purported deductions are shown, and STJ Lew sends her and IRS off to a Rule 155 bean-count.

But why should Tax Court judges, even special trial judges, engage in what amounts to return preparation? Loretta Lea should have gone to Liberty, Jackson-Hewitt or H & R Block; she would have saved the additions to tax for nonfiling and nonpayment. But maybe she thought that the $60 filing fee and an overnight to 400 Second St, N.W., was cheaper. Better not let the word get out, STJ Lew. You might find yourself  overwhelmed on April 14.

And now the footnote. See my blogpost “The Rule of Reason – Circular 230 Revisited”, 9/15/12. As I have been preparing marketed opinions for at least 35 years, I am somewhat loath to throw my old Section 10.35 language away; I rather think that my modification will be much less extensive than my blogpost suggested.

Of course, if and when the proposed Regulations go temporary, I won’t send the “cigarette pack” warning on every piece of paper or electron I send out, but I will use a variant in my opinions. While the proposed regulations are well and good, neither IRS nor Treasury can overrule Section 6664(c). As long as that is the law, a serious disclaimer is in order, at least in marketed opinions, and not just for avoiding penalties either.

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