In Uncategorized on 11/15/2012 at 17:39

I’d been running a little contest for the best excuse for not filing a tax return (see my blogpost “Whose Line Is It, Anyway?”, 2/8/12), which I expanded to cover best excuse for not providing documents and records (see my blogpost “A Good Excuse”, 9/28/12). But today’s entry falls far short, and Judge Goeke gives the excuse short shrift in Fred Deutsch, 2012 T. C. Memo. 319, filed 11/15/12.

The cast of characters and mise-en-scene brought back memories. Petitioner Fred was a wheeler-dealer thirty years ago, but in this case he was collateral damage in the great savings & loan meltdown in the early 1990s, when the Resolution Trust Company was engineering Real Estate and Bank Bailout No. 1 (the first of many). He claimed to be what we used to call a “hard-money lender”, one who lent quickly and without the paperwork a bank or institution would require. One of the loans he made was to an architect I knew and worked with years ago (around 1990). He claimed the loans he made tanked, with huge losses, and he took a big hit on loans he personally guaranteed for his own deals.

Fred was represented by a colleague I respect, who drew a miserable fact pattern in this case.

Fred’s problem was he claimed NOLs from these defaulted loans and personal guarantees, but didn’t have documents. Fred claimed that long ago an IRS Special Agent went through his records, took them, and never gave them back, but the Special Agent did help the US Attorney give Fred a felony information, to which Fred pled guilty, specifically to signing a false return (see Section 7206(1)).

At Fred’s current trial, the Special Agent testified he gave them back ten years ago, either to Fred’s trial counsel or tax accountant, neither of whom testified.

Fred tried to shift the burden of proof to IRS because of the unreturned documents. “Petitioner submits that he has satisfied all requirements to shift the burden of proof as to the propriety of his claimed NOL deduction to respondent. In particular, petitioner refers the Court to respondent’s revenue agent report, prepared by Revenue Agent C at the conclusion of his examination of petitioner’s 1997 NOL claim, to demonstrate that credible transactional records were maintained and that he is entitled to an NOL deduction as a matter of law. Alternatively, he avers that, but for respondent’s alleged failure to return business records that were submitted for purposes of respondent’s criminal investigation into petitioner’s taxable year 1997, he would have been able to fully substantiate his NOL with supporting primary documentation. Petitioner, in essence, asserts that respondent’s supposed error should not be used against him in this case.” 2012 T. C. Memo. 319, at p. 10 (Name omitted; footnote omitted, but read it; as Judge Goeke is interested in the scope of Tax Court’s discretion to shift the burden. This isn’t the case, however.)

Nice try by my colleague, but hard-hearted Judge Goeke isn’t buying. “Logically, for petitioner to even proceed with this novel argument it was incumbent upon him to, at minimum, establish the chain of custody of the supposed evidence to demonstrate that the pertinent documents were never returned. At trial petitioner merely testified that he sent the documents to his criminal attorneys, who thereafter delivered the documents to respondent. Petitioner did not call Mr. Criminal Attorney or Mr. Tax Accountant at trial to verify this assertion. Special Agent C, however, testified that he returned petitioner’s documents to petitioner’s attorneys several months after the conclusion of the criminal case in 2002 or 2003. While Special Agent C was unable to specify whether he gave the documents to Mr. Criminal Attorney or Mr. Tax Accountant, he convincingly recalled that he personally returned those documents to one of their offices. This was the only credible testimony offered at trial concerning the present location of the documents.” 2012 T. C. Memo. 319, at pp. 12-13. (Names omitted.)

Even worse, “(P)etitioner never filed a motion to compel respondent to produce the records he allegedly possessed nor made any effort to inform the Court that all reasonable attempts to locate the relevant documents were exhausted. Instead, petitioner demonstrated that he was content to proceed in this case with an indeterminate record; however, we find this clearly insufficient to shift the burden of proof.” 2012 T. C. Memo. 319, at p.14.

Compare and contrast with Andrew M. Ross, the star of my blogpost “A Good Excuse”, supra as the high-priced lawyers say. Of course, Andy drew STJ Armen, The Judge With a Heart, who buys Andy’s tale (backed up with copies of a search warrant and an FBI inventory) that his documents were grabbed by the Federales, and that Andy’s attorney strove mightily to get the documents back, to no avail.

But here Fred was content to rely on his own testimony alone, a broken reed. And absent papers, Fred’s case goes south, just like his loans, guarantees and NOLs.

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