Attorney-at-Law

Archive for January, 2013|Monthly archive page

“A CERTAIN UNEXPECTED VEIN OF PAWKY HUMOR”

In Uncategorized on 01/31/2013 at 16:37

Sherlock’s famous jibe to Watson from The Valley of Fear introduces a Tax Court case that’s actually fun to read, bringing a smile even to my jaded visage.

George Schussel first used Bermuda to stash the cash from his cash-cow Digital Consulting, Inc., but when DCI cratered, he moved his loot to the Bay State and set up Driftwood Massachusetts Business Trust, whence he claimed the loot was either loans to DCI or DCI’s payment for his intellectual property.

His hideaway in the “still vex’d Bermoothes” was Digital Consulting Limited, Inc., a Bermuda shell that did no business except cash checks made out to its US sibling DCI and divert same as Georgie directed, which neither DCI nor Georgie ever reported as income.

You’ll find the whole story, as told by Judge Cohen, in 2013 T. C. Memo. 32, filed 1/31/13.

Georgie claimed that, because DCI was a C Corp., he wanted to avoid double taxation. What he did in fact was evade any taxation, whereupon IRS descended heavily, and First Circuit affirmed Georgie’s conviction for tax evasion and conspiracy to defraud the USA.

Restored to society and litigating Section 6901 transferee liability for the Driftwood cash, Georgie’s trial testimony was blown away by Judge Cohen. Running money through DCLI violated Massachusetts’ fraudulent conveyance statute (see my blogpost “Game Ends in No Score”, 5/30/12, for more about fraudulent conveyances), and there’s no proof that Georgie transferred any intellectual property to DCI, for which Driftwood was obligated to pay him, nor any documentation of any loan from Georgie to Driftwood or anyone else.

Nothing exciting here, so why do I blog this run-of-the-mill case?

Georgie’s never-say-die attitude and his delightfully unencumbered moral sense make reading Tax Court cases fun: “…in early November 1997, while auditing DCI’s return for 1995, a revenue agent began questioning checks payable to DCI deposited in DCIL’s account. Petitioner prepared a bogus contract between DCI and DCIL allegedly for a term of two years beginning January 4, 1994, to be presented to the revenue agent by the lawyer he had hired to represent DCI in the audit. Petitioner picked the dates of the contract to coincide with termination of the practice of sending money to Bermuda, which was supposed to stop on December 31, 1995. While he was preparing the contract, he looked out the window of his home and observed his gardener mowing the lawn. Petitioner signed the name of his gardener as the ‘managing director’ executing the contract on behalf of DCIL.” 2013 T. C. Memo. 32, at p. 6.

Of course Georgie gets transferee liability in high seven figures for these shenanigans, but his story does have  “a certain unexpected vein of pawky humor”.

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THE UNCERTAINTY PRINCIPLE

In Uncategorized on 01/30/2013 at 17:49

No, this blogpost is not about quantum mechanics, about which I understand virtually nothing. It is about avoiding a Section 6662(a) accuracy penalty where the tax incident giving rise to the deficiency was the result of uncertainty.

Special Trial Judge Lewis (right way to spell it, Judge) Carluzzo explains in Elliott Rodney Thomas and Mildred Marie Thomas, 2013 T. C. Sum. Op. 5, filed 1/30/13, a Section 7463 “not for nuthin’”.

There’s a fight about whether Hurricane Katrina relief applies to the Section 6651(a)(1) late filing addition to tax (ElRod and MilMarie lose, even though the property giving rise to the deficiency was in New Orleans and damaged by Katrina; their principal place of business and place of residence was California, and they filed too late even if they’d otherwise be entitled to Katrina relief). There’s a fight about whether the loss from their real estate activities is subject to the Section 469 passive loss rules, but IRS didn’t raise that in the SNOD, fails to sustain its burden of proof on the trial, and ElRod and MilMarie win that one.

But the deficiency arises because ElRod and MilMarie claimed the Katrina casualty loss twice. They claimed the casualty loss in one year, IRS said no, they petitioned Tax Court, and the casualty loss issue was settled pre-trial, with decision for ElRod and MilMarie.

But while the Tax Court proceeding was pending, the next year’s return was due, so ElRod and MilMarie took the loss on that year’s return as well, not knowing which year would be the right year. No way, says IRS, you clearly can’t get the same deduction twice, right? So it’s time for the Section 6662(a) accuracy penalty.

Not exactly, says Judge Lew. “The deficiency, the underpayment of tax required to be shown on petitioners’ 2006 return, and the understatement of income tax all result from the casualty loss deduction claimed on petitioners’ 2006 return and disallowed in the notice. At first glance it would seem that an underpayment of tax that results from the disallowance of a deduction allowed in a previous year would be subject to the penalty. According to petitioners, however, the penalty should not be imposed because they acted reasonably and in good faith with respect to the underpayment of tax that resulted from the disallowance of the casualty loss deduction. Because of the sequence of events, we agree with petitioners.

“The casualty loss deduction claimed on petitioners’ 2005 return and 2006 return relates to the same occurrence, that is, the loss they sustained on account of the damages suffered to the New Orleans house during Hurricane Katrina. They are obviously not entitled to two deductions attributable to the same loss. Their entitlement to the 2005 loss deduction, however, was in question as of the date their 2006 return was filed. Claiming the casualty loss deduction again for 2006 was intended to ensure that the deduction was allowed for one or the other of the years.” 2013 T. C. Sum. Op. 5, at pp. 14-15.

Given the uncertainty when they filed, ElRod and MilMarie acted reasonably and in good faith. No penalty. The uncertainty principle rules.

NO DEFICIENCY, NO CASE

In Uncategorized on 01/29/2013 at 17:01

That’s Judge Gale’s tale for Lawrence J. & Estelle Mittenthal, Docket No. 998-12SL, filed 1/29/13, a designated hitter on a day when nothing else is doing at Tax Court.

Facts are simple. Larry and Stelle were assessed a deficiency, plus late file and late pay additions for 2008. Judge Gale’s Order doesn’t state whether Larry and Stelle had a chance to dispute the underlying tax deficiency, or whether they conceded the amount of tax due and unpaid, before IRS decided to levy. Howbeit, Larry and Stelle file a petition to review the levy, but in the meantime IRS grabs their 2009 overpayment to satisfy whatever Larry and Stelle owe, and moves to dismiss for mootness.

Larry and Stelle object that, although the tax may have been paid, they want to fight over the late file and late pay.

Judge Gale: “However, the Court’s jurisdiction over the underlying tax liability for 2008, including additions to tax, arises only as a result of petitioners’ challenge to respondent’s determination to proceed with the levy.” Order, pp. 1-2 (Footnote omitted).

See the omitted footnote: “Absent respondent’s attempt to levy, petitioners could not have obtained prepayment judicial review of the liabilities they dispute, which consist of additions to tax for late filing and late payment under sec. 6651. See sec. 6665(b) (allowing summary assessment of additions to tax under sec. 6651 where the additions are not attributable to a deficiency in tax).” Order, p. 2, footnote 2.

So do Larry and Stelle go to U. S. District Court or Court of Federal Claims? Unless the failure to file and failure to pay are heavy-duty dollars, it’s probably too expensive.

Bad result.

A THING OF BEAUTY – ACCEPT NO SUBSTITUTES

In Uncategorized on 01/28/2013 at 16:36

Kicking off T. C. Volume 140, B. V. Belk, Jr., and Harriet C. Belk learn from Judge Vasquez that a thing of beauty must not only be a joy forever, but must be the same thing of beauty forever, which means you can’t swap one thing of beauty with another. See 140 T. C. 1, filed 1/28/13.

BV Jr. and Harriet had a couple of hundred acres of North Carolina adjacent to, if not on top of, Old Smoky, which was held by Olde Sycamore, LLC, the membership interests of which BV Jr and Harriet owned 99% and 1%, respectively. BV Jr and Harriet subdivided the land and sold homesteads thereon, reserving 185 acres for a golf course, around and among which lay the homesteads in question.

Olde Sycamore wanted to subject the golf course to a Section 170(h) scenic easement, incidentally picking up a $10 million charitable deduction. See my blogpost “Valuable Consideration?” 10/3/12, for a similar gambit.

Olde Sycamore’s problem wasn’t the “ten dollars and other valuable consideration” boilerplate, but rather BV Jr and Harriet trying to play mix-and-match with the golf course.

Their deal with the fetchingly-named Smoky Mountains National Land Trust, n/k/a Southwest Regional Land Conservancy, a 501(c)(3) whose purpose was keeping unspoiled our national patrimony, included a provision allowing B V Jr. and Harriet to swap other land for the golf course, to which Smoky couldn’t unreasonably object, provided the conservation purpose was maintained.

The latter is designed to satisfy Section 170(h)(5) conservation purpose. But Judge Vasquez says that doesn’t satisfy the Section 170(h)(2)(C) perpetuity purpose. The two are separate. Section 170(h)(5) allows for a form of cy pres where changed circumstances make the originally donated property unsuitable for continued conservation purposes. But the property has to satisfy Section 170(h)(2)(C) to begin with, that is, subject to the restriction in perpetuity.

So the real issue is the Section 170(h)(2)(C) use requirement that a partial interest in real property must be restricted in perpetuity. And Judge Vasquez says this is a case of first impression, thus a Tax Court full-dress opinion is warranted.

Judge Vasquez: “Petitioners [BV Jr and Harriet] argue it does not matter that the conservation easement agreement permits substitution because it permits only substitutions that will not harm the conservation purposes of the conservation easement. However, as discussed above, the section 170(h)(5) requirement that the conservation purpose be protected in perpetuity is separate and distinct from the section 170(h)(2)(C) requirement that there be real property subject to a use restriction in perpetuity. Satisfying section 170(h)(5) does not necessarily affect whether there is a qualified real property interest. Section 170(h)(2), as well as the corresponding regulations and the legislative history, when defining qualified real property interest does not mention conservation purpose. There is nothing to suggest that section 170(h)(2)(C) should be read to mean that the restriction granted on the use which may be made of the real property does not need to be in perpetuity if the conservation purpose is protected.

“We find it is immaterial that SMNLT must approve the substitutions. There is nothing in the Code, the regulations, or the legislative history to suggest that section 170(h)(2)(C) is to be read to require that the interest in property donated be a restriction on the use of the real property granted in perpetuity unless the parties agree otherwise. The requirements of section 170(h) apply even if taxpayers and qualified organizations wish to agree otherwise.” 140 T. C. 1, at pp. 19-20 (Footnote omitted).

So mixing-and-matching or swapping is out. And so is BV Jr’s and Harriet’s deduction.

121 and 1031

In Uncategorized on 01/25/2013 at 23:17

I was so absorbed by Judge Wherry’s 114-page excursion through the wilderness of Nevada and appraisal practice yesterday (1/24/13), Estate of Shirley Giovacchini et al., 2013 T. C. Memo. 27, that I almost forgot Judge Goeke’s foray into similar territory on that same day, Jessie G. Yates III and Melissa Long Yates, 2013 T. C. Memo. 28, filed 1/24/13.

Although Judge Goeke has much to say about appraisals, we’re back to the Alice in Wonderland story of eating the cake that makes one smaller and imbibing the drink that makes one larger; but this time we have a principal residence and a business property transferred at the same time.

Jess and Mel had a home and a restaurant (the Hula Grill). They sold their home and bought a vacant lot, on which they built a house. They claimed they wanted to use the new house as a bed and breakfast, and included a statement to that effect in their purchase contract, but never checked the zoning or required their seller to obtain any permits or approvals, or conditioned their performance on obtaining same.

But they did move in and live there.

Next, the Hula Grill almost lost its grass skirt when their neighbor, Mr. Maynard, a seasoned real estate investor doing an assemblage for a Hilton hotel, terminated their lease on an adjoining lot, whereon Jess and Mel parked the cars of the Hula Grill diners. Without a parking lot, the Hula Grill was toast.

So Jess and Mel sold to Maynard, insisting he had to buy the new house as well as the Hula Grill. Jess and Mel wanted to do a Section 1031 like-kind exchange, wherein like for like can be swapped tax-free; but a Section 1031 exchange only works for property used in a trade or business, or held for investment.

Jess and Mel strike out on the new house as business property. Their testimony is self-serving, and the contract reference to a bed and breakfast is window-dressing, says Judge Goeke. See my blogpost “Welcome, Judge Guy”, 4/24/12, wherein I skim over the Reesink case, cited by Judge Geoke.

Now as to the Section 121 exclusion of gain on sale of principal residence. IRS agrees the new house was Jess’ and Mel’s principal residence. Since the new house is a principal residence, and Jess and Mel can satisfy the various two-out-of-five rules, they can exclude $500K of gain even if they can’t get Section 1031 benefit.

Judge Goeke: “Consequently, we are presented with the simultaneous application of section 121 and section 1031 to the exchange at issue. The Commissioner has indicated that in these circumstances ‘[s]ection 121 must be applied to gain realized before applying section 1031’. Rev. Proc. 2005- 14, sec. 4.02, 2005-1 C.B. 528, 529.” 2013 T. C. Memo. 28, at p. 5.

So each of the two properties sold must be treated as a separate exchange group, the Hula Grill as like-kind, and the new house as “boot” or unlike-kind. Jess and Mel spell out the relative values of the two properties in the contract, and Mr. Maynard, the real estate pro, initials the allocation and signs off. He isn’t doing a Section 1031 exchange; for him, it’s a straight purchase.

IRS claims Jess and Mel gerrymandered the allocation, to minimize the value of the Hula Grill property so as to sop up the gain from the new house. IRS also wants substantial undervaluation penalty.

No, says Judge Goeke. While the new house isn’t like-kind, the fact that the sale to Mr. Maynard was arms’-length, and adversarial; Maynard had shut down the Hula Grill and didn’t want the house. Maynard was doing a purchase, not an exchange.  Maynard testified he didn’t remember how the allocation came about, but Judge Goeke opines that, as a sophisticated real estate operator, Maynard would be expected to make sure each of the properties he bought would have basis appropriate for disposition or depreciation.

And since Jess and Mel cooperated with IRS, and since the agreement with Maynard was some evidence of an arms’-length valuation of the properties, IRS had Section 7491 burden of proof here, and IRS fails to discharge that burden.

So the allocation stands, and there’ll have to be a Rule 155 hoe-down to see how the numbers work.

But Jess and Mel may have a Section 6662 penalty, since they don’t put their accountant on the stand or provide either the accountant’s credentials, or what they told their accountant, or what their accountant told them.

Takeaway- Always, always put the preparer and advisor on the stand–if they have any credentials at all. See my blogpost “The Case of the Incoherent Accountant”, 3/1/11.

THE MAN WHO NEVER WAS

In Uncategorized on 01/25/2013 at 09:31

No, not the 1956 movie about the World War II impostor, but rather about the legal fictitious person, the “willing buyer” and his (or in the modern world, her) counterpart, the “willing seller”, each armed with all reasonably available knowledge concerning that which is to be sold and bought, and neither one of them under any compulsion to buy (or sell), and both looking to get the best deal they can.

Of course, the lawyers and judges recognize that these criteria apply to none of the parties to the case at hand, and are designed to represent the hypothetical ideal, nevertheless the appraisers and the triers of fact must follow the lead of these mythical beings, rather like those deceived by Ewen Montagu’s fictitious “Major William Martin, R.M.”

So we have yet another appraisal case (they seem to gravitate to Tax Court, just as the mythical Major Martin drifted ashore in Spain). Case in point: Estate Of Shirley C. Giovacchini, Deceased, Donor, Lisa Lekumberry, Executor and Trustee, 2013 T. C. Memo. 27, filed 1/24/13.

See my blogpost “Such Rarefied Heights of Pure Mathematics”, 6/25/11.

The reason I’m a day late (but not a dollar short) is that it took a while to digest 114 pages of Judge Wherry’s prose.

The late Shirley was a granddaughter of the pioneers who settled the Lake Tahoe region of Nevada. Before joining the aforesaid ancestors, Shirley sold, gifted, settled and bequeathed the last large plot, piece or parcel of land in the Lake Country, hedged round with scenic, environmental, and governmental restrictions, but still of immense value.

The varied environmental and governmental authorities offered telephone numbers to the late Shirley for her 2500 acres of Rocky Mountain High, and backed up the same with made-to-order appraisals, designed to pry the maximum cash from the public fisc to secure in perpetuity the magnificent land unspoiled by those whose money was being thus expended. The appraisers ignored their own rules, but they claimed it was in a good cause.

The late Shirley did a sale of some 1700 acres with the governmentals and not-for-profts, but kept some 500 or so acres, which she put in the usual trust and LLC mix-and-match for her descendants, at the behest of the family’s trusted CPA, Randal S.  (“Kuckie”) Kuckenmeister (great name!), who prepares the Form 709 and the Form 706.

Shirley joins the ancestral pioneers, and then begins the fun. IRS assesses gift and estate tax deficiencies based on the made-to-order appraisals.

Enter the next class of appraisers. IRS agrees that the burden of proof is on IRS, a rare occurrence, and trots out its own appraiser.

As value for gift tax and estate tax purposes is the same–“fair market value”. “As a general concept, fair market value is well defined. It is “the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts”. 2013 T. C. Memo. 27, at p. 32 (Citations omitted).

Valuation is ultimately a question of fact. So Judge Wherry weighs and measures the dueling appraisers. If you’re into the theory and practice of real estate appraisal (with a detour, explaining how the Federal government can effectively confiscate private property by making access thereto virtually impossible), read it.

Finally, Judge Wherry, in a quasi-Solomonic moment, cuts the appraisals in pieces, and constructs a valuation greater than Executor and Trustee Lisa’s crew would wish, but less than IRS wanted. Judge Wherry does deny the Section 6662 panoply (including, but without in any way limiting the generality of the foregoing, as the high-priced lawyers say)  the 40% substantial undervaluation, because Executor and Trustee Lisa reasonably relied on her appraisers and Kuckie.

Long live the non-existent “willing buyer and willing seller”.

TOO SWIFT ARRIVES AS TARDY AS TOO LATE – PART DEUX

In Uncategorized on 01/23/2013 at 15:44

But Maybe Not

See my blogpost “Too Swift Arrives as Tardy as Too Late”, filed 5/9/11.

Putting a new twist on the old saying, Special Trial Judge Lew Carluzzo, the Man With the Great Given Name, has a good Designated Order on a day when Tax Court has nothing else to offer, 1/23/13. This is Kedar Roberts, Docket No. 24505-12SL, filed 1/23/13.

It’s a motion to dismiss the petition as untimely filed–but filed too soon, not too late. IRS issued a NOD saying it was appropriate to file a NFTL on Kedar. Kedar mailed his petition 9/29, but the NOD was dated and mailed 10/3. Apparently Kedar was either psychic, or Appeals told him he was out of luck. Anyway, Tax Court got Kedar’s petition 10/3.

Generally, says STJ Lew, IRS is right. There must be a NOD before there can be a petition, but here there was a tie. IRS relies on the “mailed-is-filed” rule in Section 7502 and moves to dismiss. Kedar replies, but his reply doesn’t raise anything but frivolity, so STJ Lew shows Kedar the Section 6673 yellow card.

“As relevant here, section 7502 is applicable if a petition is delivered to the Court after the period prescribed in section 6330(d) expires. If that occurs, then, for jurisdictional purposes and under conditions set forth in the statute, the date that the petition was mailed is treated as the date the petition is filed. That is not the situation here; the petition was not delivered after the period prescribed by section 6330(d) expired. Consequently, section 7502 does not apply. The date that the petition was mailed is not taken into account; the date that the petition was received by the Court and filed controls.” Order, at p. 2.

The NOD was mailed 10/3, and the petition was not received or filed before that date or after the expiry of the statutory limit for filing a petition.

Thus Kedar’s petition, neither too soon nor too late, is timely filed.

SICK CALL

In Uncategorized on 01/22/2013 at 23:22

It is at least 45 years since I heard Sergeant Longry’s nasal, gravelly snarl resound through Tent City at Fort Jackson, South Carolina: “Sick call! Get out here, you sick, lame and lazy!” Only a near-death condition would suffice for ol’ Sarge.

But IRS Appeals should heed ol’ Sarge’s words. See my blogpost “Sick Sick Sick”, 9/26/12, the sad tale of A. DeeWayne Jones and his remand to Appeals from Judge Marvel.

Now Judge Wherry deals with the issue, this time featuring LaMar D. Pomeroy, briefed and argued with Dixie L. Pomeroy in 2013 T. C. Memo. 26, filed 1/22/13.

LaMar isn’t very sympathetic. He’s a habitual non-filer and frivolity merchant who has run up a substantial tax, additions and frivolity penalty liability. Judge Wherry: “Petitioners, LaMar and Dixie Pomeroy, are husband and wife, and both are retired. They have a long history of noncompliance with Federal income tax responsibilities, with unpaid income tax liabilities for the years 1997 through 2009. In addition, Mr. Pomeroy has unpaid liabilities for civil penalties for frivolous submissions assessed under section 6702(a) for the tax years 1999, 2000, 2003, and 2005. Mrs. Pomeroy has unpaid liabilities for civil penalties for frivolous submissions assessed for tax years 1994, 1999, 2000, 2003, and 2005.  For tax years 1997 through 2003 and 2006, petitioners did not file income tax returns, and respondent [IRS] prepared substitutes for returns under section 6020(b).” 2013 T. C. Memo. 26, at p. 3.

But he is a sick fellow, and Appeals didn’t give Dixie a fair chance to get a doctor’s note attesting to LaMar’s deteriorated physical state. Dixie did get a doctor’s letter, but produced it after the administrative record had closed, and Ninth Circuit learning bars introduction of such evidence after the administrative record has closed.

LaMar tried offers-in-compromise, but COIC determined he and Dixie could pay in full before the SOL on assessments ran out, and that’s fine, even though LaMar argued that 48 months was the limit, and COIC had to consider his physical ailments.

“The crux of petitioners’ argument appears to be that Mr. Pomeroy’s medical condition qualified them for offers-in-compromise based on effective tax administration even though they submitted the offers under doubt as to collectibility grounds. Indeed, IRM pt. 5.8.11.4(3) (Sept. 23, 2008) states that, for offers submitted as doubt as to collectibility offers, the settlement officer should also consider the offer as an effective tax administration offer if special circumstances exist even if the collection potential exceeds the liability. Petitioners point to numerous instances in the record to show that Appeals was well aware of Mr. Pomeroy’s stroke and should have considered the offers as effective tax administration offers once it determined that petitioners could fully pay the liabilities.” 2013 T. C. Memo. 26, at p. 17.

“Petitioners alerted respondent numerous times that Mr. Pomeroy was gravely ill. The administrative record reflects that Appeals was not only aware that Mr. Pomeroy had suffered a stroke, which could very well have a drastic effect on petitioners’ medical expenses, but it was also aware that Mrs. Pomeroy was in the process of trying to get a letter from a physician. SO gave petitioners only 10 business days, between the November 29, 2010, date of the letter and the December 13, 2010, deadline, to obtain a prognosis or diagnosis from a doctor.” 2013 T. C. Memo. 26, at pp. 18-19 (Name and footnotes omitted).

But one omitted footnote is worth quoting: “As Mrs. Pomeroy testified at trial: “’[W]hen you have a family member that is almost on their death bed, it gets kind of hard to do everything[.]’” 2013 T. C. Memo. 26, at p. 18, footnote 8.

Judge Wherry decides he can’t evaluate the record based upon what appears therein. So he sends the case back to Appeals, where presumably Dixie can put in the rejected doctor’s letter, and whatever other pictures, descriptions and accounts she can muster to document LaMar’s lamentable condition.

Even a hardened sinner like LaMar can get due process in Tax Court, if he’s on sick call.

CHEVRON, MAYO–I’M LOVING IT

In Uncategorized on 01/21/2013 at 15:18

Doug Shulman’s legacy, as brought to fruition by Dave Williams at the Return Preparers Office of IRS, namely the regulation of hitherto-unregulated tax return preparers via the Circular 230 RTRP (Registered Tax Return Preparers, pronounced “retreps”) provisions, has been torpedoed by Judge Boasberg in Loving vs. IRS, Civil Action 12-385, filed 1/18/13, in US District Court for the District of Columbia.

Sabina Loving and two other paid return preparers claim that IRS has no statutory authority to require them to take a test, pay an annual fee, and take 15 hours of CPE each year.

Judge Boasberg agrees. The 1884 statute (31 USC §330), which gives the Secretary of the Treasury authority to regulate representatives of claimants appearing before the Department, doesn’t give IRS authority to regulate those who merely prepare returns. Of course, if they show up at examination of a return they prepared, that’s another story.

The test is Chevron, of course; see my blogpost “Carpenter, Colony, Chevron and Mayo”, 4/26/11. When questioning the validity of a regulation, first see if Congress has spoken unambiguously; if so, game over, and the statute rules, says Chevron. Only if Congress either hasn’t spoken, or has spoken ambiguously, does a Court test whether the regulation is arbitrary, capricious or manifestly contrary to the statute, says Mayo.

Judge Boasberg says that §330 is clear: you have to do more than fill out a self-assessment, which is all that a tax return is, to represent someone before the IRS. And Congress could well desire to have those who deal with examination and appeals demonstrate greater expertise and character than one who fills out a return.

Moreover, Congress has enacted a number of specific preparer penalties, all of which would be overturned if IRS could use its penalty powers under Circular 230 to regulate preparers, as well as deprive them of certain procedural due process.

While IRS may have valid policy considerations, the statute remains, and only Congress can allow the procedures IRS desires. Likewise, prior inconsistencies in IRS’ position on preparers would only be relevant if we go to the arbitrary or capricious analysis, but we need not go there, says Judge Boasberg.

You can be sure we’ll be hearing more about this. I know the professional associations will be following this case as it proceeds.

UTTERLY HELPFUL

In Uncategorized on 01/18/2013 at 17:36

That’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Mark V. Holmes. There being no decisions out of Tax Court today, 1/18/13, I pulled a couple of orders from yesterday’s bushelbasket.

First up is Vernon Walter Menifee, III, Docket No. 8628-11, filed 1/17/13. Judge Holmes sets the scene: “This case is on the Court’s May 20, 2013 trial calendar for Buffalo, New York. It arises from seven years of deficiencies that the IRS determined Mr. Menifee owed after he apparently failed to file any returns.” Order, p. 1.

Simple enough, right? Just check out any SFRs, bank record reconstructions, third-party notices, receipts, logs, vouchers, and Vern’s quality and manner of life during the years at issue. But that won’t do, because Vern has another problem besides his tax problem.

“Mr. Menifee is cooperating with his counsel as best he can from federal prison, but the large amounts and numerous issues led both parties to agree that it made sense to wait until his release to try to settle the case or get it ready for trial.

“The Court will put this on a very long-term status report track and contact the parties — after Mr. Menifee is released — to set a date for the first one.” Order, p. 1.

Sounds like Vern has plenty of time to think about how to defend this case. And remember our friend Robert L. Willson, Sr., the star of 2011 T.C. Sum. Op. 132, filed 11/23/11. Judge Holmes noted in that case that the IRS let Willie serve out his time before going after him. See my blogpost “Basis for Dummies”, 11/24/11.

So don’t expect a decision soon.

Next up are Vasant S. & Panna V. Kale, Docket No. 11323-11, filed 1/17/13. Vas and Pan didn’t show when their case was called at the LA trial part. IRS moved to throw out the case for failure to prosecute, but Judge Holmes held off. “Petitioners did have counsel, and the Court wanted to ensure that it is petitioners and not just their counsel, who defaulted. We ordered them to show cause why we shouldn’t dismiss their case for lack of prosecution, and ordered them (and not just their lawyer) to be served.” Order, p. 1.

Remember my blogpost “How Not To Do It”, 11/21/12, where an attorney I pseudonymously called Feckless Freddie got the right-about-face from Judge Holmes?

Same story. Comes the return date of the OSC, and neither Vas nor Pan shows up or shows cause, and their counsel is similarly AWOL.

So Judge Holmes tosses their case, and nails Vas and Pan for better than $200K in deficiencies and penalties for the two years at issue.

But you can’t say Judge Holmes doesn’t try.