In Uncategorized on 01/10/2013 at 01:59

Most Tax Court cases do not deal with novel or interesting points of law, or reinforce our present understanding with apt illustrations. But every so often there comes a case that, while neither introducing the new nor rejuvenating the old, tells a story that brings a smile to even the most jaded and trench-weary practitioner.

Such is the tale of Ronald S. Mills and Judy A. Mills, 2013 T. C. Memo. 4, filed 1/9/13, Judge Wherry carefully sticking to the facts. He lets Ron and Judy’s tale speak for itself.

Ron and Judy are real estateniks, running their business through three wholly-owned LLCs in (where else?) California. The LLCs were created, and their tax returns filed, by accountant Robert A. Sandlin.

Robert A. wasn’t a certified public accountant, but he was an enrolled agent, at least until he was placed on the inactive list in the year immediately preceding the year at issue. Judge Wherry explains: “An enrolled agent is an individual ‘who demonstrates special competence in tax matters by written examination administered by, or administered under the oversight of, the Director of Practice [now the Office of Professional Responsibility] and who has not engaged in any conduct that would justify the censure, suspension, or disbarment of any practitioner’. 31 C.F.R. sec. 10.4(a) (2007).” 2013 T.C. Memo. 4, at p. 4, footnote 4.

Bob was nothing if not inventive: “As stated, Mr. Sandlin assisted petitioners in forming the three LLCs. Petitioners relied on Mr. Sandlin to establish depreciation schedules for the assets held by the LLCs. Mr. Sandlin also told petitioners that they could amortize the value of Mr. Mills’ contribution of his life, time, and expertise in real estate management.” 2013 T. C. Memo. 4, at p. 4.

This is akin to the old basis-in-labor protester argument; see my blogpost “An Obliging Judge”, 10/18/12.

Needless to say, this earns Ron and Judy a $111K deficiency in tax and a $18K late filing addition, both of which they concede. But they want to fight about the $22K Section 6662(a) accuracy penalty.

They relied on Robert A.

Alas, “A trial was initially set for the trial calendar session beginning December 5, 2011, in Los Angeles, California. On December 7, 2011, we granted petitioners’ oral motion to continue the case to allow them time to speak with their former adviser, Mr. Sandlin. Petitioners and respondent had only just found Mr. Sandlin, who was then residing in Colorado at a Federal penitentiary.

“Mr. Sandlin, when he was not advising taxpayers to amortize the value of their own lives, was stealing money from clients’ individual retirement accounts using forged power-of-attorney forms. He also kept for himself client money that he had promised to pay over to Federal and State taxing authorities to settle outstanding tax liabilities. On January 22, 2009, Mr. Sandlin pleaded guilty to one count of wire fraud under 18 U.S.C. sec. 1343 and one count of willfully causing another to commit wire fraud under 18 U.S.C. sec. 2(b). On March 18, 2010, as part of an amended plea agreement, Mr. Sandlin agreed not to prepare Federal tax returns, represent people before the IRS, or hold himself out as an enrolled agent.

“The trial went forward without Mr. Sandlin and was held in Los Angeles on March 12, 2012.” 2013 T. C. Memo. 4, at pp. 5-6.

Ron came up with the valuations of his life and experience, based upon which he took the deductions; he wasn’t a passive bystander. And while Robert A. might once have been an EA, he wasn’t when he prepared the returns at issue, and the record didn’t show when he first became an EA,  nor what other special expertise he had.

“Finally, petitioners must also show that they relied upon Mr. Sandlin’s advice in good faith. Petitioners’ main reason for trusting Mr. Sandlin was that he had the trappings of success: a boat and a busy office. But an appearance of prosperity is not necessarily synonymous with competence.” 2013 T. C. Memo. 4, at p. 11.

So Ron and Judy get the penalty.

That must explain my career; I never had a boat.

  1. This is funny. But why don’t you have a boat? Don’t all tax people have one? Except for the two of us it seems. 😦


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