Judge David Gustafson fans will remember the obliging judge from Thomas John Babcock, Docket No. 21863-11, Order filed 10/19/12, who endeavored to track down Thomas John when he wasn’t getting the message. To refresh your recollection, see my blogpost “We’ll Come to You – Part Deux”, 10/12/12.

Judge Gale, not to be outdone, goes searching for the heirs at law, distributees, legatees, personal representatives and general hangers-on of the late Gordon F. McCaleb, in Docket No. 656-12S, Order filed 1/4/13.

The late Gordo was fighting a $4K deficiency (IRS conceded the accuracy penalty). Gordo’s story:  “Respondent used a zero basis to calculate the income petitioner realized from his sale of the stock options. In his petition, petitioner acknowledged that the deficiency ‘was due to stock options that were left off the return’ but alleged that he paid ‘tax on the income through payroll withholding’ and that he ‘should have included basis to the extent of sales’ on a Schedule D, Capital Gains and Losses, that ‘should have been included with the return and was not’.” Order, p. 1 (Footnote omitted).

Comes the trial, and Gordo doesn’t show. IRS explains, in the immortal words of Starfleet Surgeon Commander Leonard McCoy to Starfleet Starship Captain James T. Kirk, “He’s dead, Jim.”

IRS says throw out the case for want of timely prosecution, insomuch as Gordo has shuffled off this mortal coil without leaving behind him executor, administrator, personal representative, or any of the consolations of probate law. Or more elegantly: “Respondent’s counsel filed a motion to dismiss for lack of prosecution. Therein, respondent advises that petitioner did not leave a will and that no representative or fiduciary is currently authorized to act on behalf of petitioner’s estate. Respondent further advises that petitioner’s only ascertainable heirs are his surviving issue….” Order, p. 2.

Judge Gale denies the motion, with copious citation to relevant State law; petitioners come and go, but Tax Court cases go on. “This Court’s jurisdiction over a case continues unimpaired by the death of a petitioner, even when there is no personal representative appointed to act in the place and stead of the decedent. Indeed, our jurisdiction resulting from a properly filed petition continues until our functions are terminated by decision or dismissal. An order dismissing a case for lack of prosecution is considered a decision that the deficiency is the amount determined by the Internal Revenue Service. Sec. 7459(d). In situations similar to the present case we have recognized that there may be survivors whose monetary interests are capable of being affected by satisfaction of the liabilities which will be determined consequent upon a dismissal for lack of prosecution. Accordingly, we have found it appropriate to give notice of the proceedings to those whose interests stand to be affected, so that they may have an opportunity to be heard if they so desire.” Order, p. 2. (Citations omitted.)

And Rule 63(a) lets the judge, on his or her own initiative, order substitution of a proper party to carry on the fight of the dear departed (and incidentally to protect his, her or their wallet or wallets).

So Judge Gale cites the aforementioned State law at length, and even includes a copy thereof (cribbed from Westlaw) to be served on the aforesaid issue of the late Gordo, together with copies of this Order, and even gives the Clerk of the Court the last known addresses of the aforesaid issue to make it easy to mail the same.

And Judge Gale extends an invitation to the heirs, good for thirty days, in the immortal words of Charles Lutwidge Dodgson, “will you, won’t you, will you, won’t you, won’t you join the dance?”

The Tax Court Judges are so obliging.

And Socially Insecure

That’s Jim Brady’s plight in James Brady and Mary Brady, as Jim bats lead-off in 2013 T.C. Memo. 1, filed 1/3/13, Judge Goeke pitching the bad news.

Jim forgot to report about $1.5K in dividends, so he gets an underreporting penalty, but that’s the least of Jim’s problems.

Jim is a retired Wall Street floor broker with a varied background–“Before his employment as a broker, Mr. Brady worked in sanitation, construction, as a sergeant in the U.S. Marines, and as a New York Stock Exchange clerk.” 2013 T. C. Memo. 1, at p. 12, footnote 3.

Jim was disabled and getting paid by Unum under a disability policy–payments concededly non-taxable, but the policy provided that if Jim could get Social Security, he would have to take it and pay Unum back out of whatever he got from SSA. And Social Security is taxable, up to 85% of benefits.

Jim strikes out with SSA the first time around, loses appeal number one, but wins an administrative hearing and gets $87K, of which $73K is retroactive benefit money he owes Unum for past benefits.

Jim goes to Ronny, a CPA and lawyer, to do his return. Ronny reports Jim’s $14K current benefits, but nets out the retro Jim paid Unum. Jim admits on the trial he forgot to give Ronny the 1099s he got for the dividends.

No good, says Judge Goeke, Jim owes tax on the whole enchilada, at least up to 85% thereof. If it was a payback to SSA for past benefits, that can be netted, but not paybacks to private insurers. See Section 86(d)(2)(A).

Judge Goeke: “We addressed a similar issue involving reimbursement of funds to a private insurer in Seaver v. Commissioner, T.C. Memo. 2009-270. In that case we held that when a recipient of Social Security benefits is required by contract to reimburse a third party for tax-free benefits previously received, the recipient is not entitled to a deduction for the reimbursement. Id., slip op. at 7. We stated that we were not ‘free to question’ the choices that Congress had made regarding Social Security benefits and benefits paid by a private insurer.” 2013 T. C. Memo. 1, at pp. 5-6.

Tax Court may not be free to question Congress’ choices, but I am. This is another way that a disabled person, who has no other sources of income but relies on insurance (whether private or governmental), gets mistreated. And that’s regardless of partisan issues; this is a non-political blog, friends.

So Jim is on the hook for the tax. But he relied on Ronny, the attorney and CPA, so penalties only for the dividends.

Now for yet another example why one should hire a lawyer with Tax Court experience, or a Tax Court admittee, that rare specimen who passed through the needle’s eye, for a Tax Court trial. Jim might have made a Section 86(e) election, and adjusted the taxable amount of the benefits he received. Maybe it would have helped him, although IRS said it wouldn’t, even if he could so elect four years after the fact, which IRS did not concede.

“At trial the Court inquired whether petitioners would like to make the section 86(e) election if the election would aid them and if making the election so long after filing their 2008 return was possible. Petitioners stated that they would. However, not only have we found no authority for making the section 86(e) election so long after the filing of the relevant tax return, but respondent has stated in his brief that ‘based on the petitioners’ income in the previous years’, even if a section 86(e) election was made it ‘would do nothing to limit petitioners’ tax liability.’  Petitioners’ tax returns (or other statements of income) for 2005 through 2007 were not introduced into evidence for our review, and petitioners did not dispute respondent’s statement. Given that the burden of proof is on petitioners, we find they have not proven that the section 86(e) election is of any consequence in this case. We will not proceed to address whether it is possible for petitioners to make such an election with respect to 2008 at this late date.” 2013 T. C. Memo. 1, at p. 7. (Footnote omitted).

The omitted footnote says Jim had a chance to file a post-trial brief after IRS had filed theirs, but Jim didn’t. There may be no authority to allow a late-filed Section 86(e) election, but it might have been worth asking. There doesn’t seem to be any authority denying it.

Pity the pro se in Tax Court.

Slow start to 2013 in Tax Court, just one Section 7463 that’s the ordinary substantiation rehash, so let’s go to the Designated Hitters. Judge Morrison denies summary judgment to Brad Glazer, in Bradley Glazer, Docket No. 10777-12S, filed 1/2/13, on his alimony deductions for both of his ex-wives.

Brad claims Madra, Wife No. 1, was entitled to alimony per their divorce decree if her disability payments were cut or extinguished. But he only proffers the decree allegedly supporting this claim in his reply to IRS’ response to Brad’s motion for summary judgment.

No good, says Judge Morrison: “Respondent has not had a chance to respond to petitioner’s reply or to the documents attached to this reply. Rather than ordering further briefing of the summary-judgment motion, it is more efficient to leave these documents to be introduced by petitioner at trial and for respondent to present his views of the documents then.” Order, p. 1.

Summary judgment means “marshal and lay bare your proofs” to begin with, right? Brad didn’t, so Brad’s payments to Mad, and the basis therefor and the deductibility thereof, must await the trial.

And Brad has another alimony issue, this time with Wife No. 2, Helena.  Here again Brad pays and wants the deduction. And again Judge Morrison squelches him: “However, his 2001 divorce decree from Helena Glazer made no provision for ongoing alimony payments. Although petitioner alleges that his signature on a Form I-864 imposed on him an obligation to provide support to Helena Glazer, petitioner did not show through acceptable documents, affidavits, or sworn declarations, that he signed any Form I-864.” Order, p. 2.

So Brad must prove Mad’s entitlement, and deal with Helena and the elusive I-864. Should be a fun trial.

Incidentally, I-864 is not a six-lane horror show with feeder roads and fast fooderies, but rather an Affidavit of Support for immigration purposes.