Or, The Hidden-Ball Trick

Once more, Joe Alfred Izen, Esq., and Karen Cooley are trying for Section 7430 administrative and litigation expenses; see my blogpost “The $2000 Misunderstanding”, 6/12/12. This time Judge Kroupa encounters the dynamic duo in Karen Cooley, 2013 T. C. Memo.15, filed 1/15/13.

Readers of my earlier blogpost will remember that Joey A. and Karen are married, but signed a post-nup that said each would keep separate all income and expenses. As they live in a community property state (Texas), absent such an agreement each spouse’s property is shared with the other.

Joey A. and Karen record their post-nup, Karen files married separate, doesn’t include half of Joey A.’s income, and when IRS increases Karen’s income by that amount, Karen, represented by Joey A. of course, asserts the post-nup (styled a “partition agreement”) and tells IRS to search the public records for same. IRS gives Karen a SNOD instead.

Joey A. files a petition with Tax Court, asserting the partition agreement without providing a copy to IRS.

“Respondent [IRS] requested additional time to answer the petition to obtain the partition agreement from petitioner. On the very same day petitioner’s counsel sent the partition agreement to respondent by facsimile. Respondent conceded the deficiency determination in his answer.

“Petitioner thereafter filed a motion for litigation costs and expenses. Petitioner’s purported costs were primarily incurred during the administrative proceeding. Accordingly, we interpret it as a motion for administrative costs as well as litigation costs. Respondent opposes the motion.” 2013 T. C. Memo. 15, at p. 3.

“Petitioner argues that respondent’s administrative position was unreasonable because respondent did not follow the ‘lead’ petitioner provided to search public records for the partition agreement. Respondent counters that his administrative position was reasonable because petitioner did not rebut the community property presumption by providing the agreement. We agree with respondent.” 2013 T. C. Memo. 15, at p. 6.

In a community property state, a spouse filing separately is deemed to have received one-half of the other spouse’s income. While IRS has been found to be justified when it searches the public record, it is not deemed unjustified when it fails to do so.

And Karen is an old hand at the hidden-ball trick, concealing evidence until after the proceeding is commenced. Judge Kroupa cites 2012 T. C. Memo. 164,  the subject of my abovecited blogpost, wherein Judge Holmes, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being,  berates Karen and Joey A. for their trickery in an earlier case for not playing show-and-tell up front.

So IRS is substantially justified both at the administrative and litigation checkpoints. And to quote my earlier blogpost again “So no payday for Joey A. But Joey A is quite a card. And he and Karen are quite a team.”