When it comes to Section 152(a)(1) qualifying children, ties don’t count if only one person could claim the child. That’s the lesson Judge Paris has for IRS in Basil Oliver, Jr, 2013 T. C. Memo.117, filed 4/30/13.

BO and IRS are fighting over the dependency exemption, child tax credit and additional EITC that BO took for baby TAH, who is “the twin son of petitioner’s halfbrother, Trenton Freeman. Petitioner and Mr. Freeman have the same mother but not the same father. Accordingly, petitioner’s father, Basil Oliver, Sr. (Basil Sr.),  is not the biological grandfather of TAH.” 2013 T.C. Memo. 117, at p. 2.

Clear?

BO and Sr. lived in the same house and took care of TAH, one of them babysitting while the other worked. Mama Deirdre provided healthcare via Medicaid, and she was TAH’s legal guardian. BO doesn’t have a lot of records to show what diapers, formula, shoes and clothing he bought TAH, but TAH had his own crib in BO’s bedroom.

IRS says no go; see the Section 152(c)(4) rules. This was a pain to memorize for the SEE, and I promptly forgot them as soon as the test was over.

Judge Paris: “…only taxpayers who share the same abode with the individual can claim the individual as a qualifying child. Sec. 152(c)(1)(B). The only taxpayers who satisfy this requirement are petitioner and his father. Specifically, neither of TAH’s parents can claim TAH as a qualifying child because neither had the same principal place of abode as TAH for more than one-half of the taxable year. Further, Basil Sr. cannot claim TAH as a qualifying child because TAH does not bear the requisite relationship to Basil Sr. See sec. 152(c)(2). TAH is not his child or stepchild–or descendent thereof–under section 152(f)(1)(A). Accordingly, petitioner is the only individual who can claim TAH as a qualifying child, and the section 152(c)(4) tie-breaker rules are inapplicable.” 2013 T. C. Memo. 117, at p. 9. (Footnote omitted).

BO gets the whole boat. And see my blogpost “Read The Law”, 9/12/11.

Is no excuse for Deborah E. Cole in Harry E. Cole and Deborah L. Cole, a “not for nuthin’” Section 7463, 2013 T. C. Sum Op. 34, filed 4/29/13, an example of willful blindness that would gratify the Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, Judge Mark V. Holmes, although here it’s STJ Daniel A. (“Yuda”) Guy, Jr., who tells the story.

As for willful blindness, see my blogpost “Lawyers Can’t Add”, 1/17/13.

Debbie wants Section 6015(f) equitable innocent spouse treatment, “(A)lthough petitioners testified at trial that they consider themselves to be separated, they have never been divorced or legally separated, and they continued to reside in the same household at all times relevant to this case.” 2013 T. C. Sum Op. 34, at p. 3.

Harry and Debbie conceded a lot of their non-existent deductions. Their claim for casualty loss to their pre-owned Mercedes-Benz crashes when they can’t prove their basis in the vehicle, and their claim for their flooded basement founders when they testify that their lawsuit against the City of Baltimore is ongoing and they are vigorously prosecuting same, so there’s no “loss” if there’s a reasonable chance of recovery.

Debbie claims it’s all Harry’s fault.

STJ “Yuda” Guy: “…Mrs. Cole had reason to know of the understatements of tax within the meaning of section 6015(b)(1)(C). A spouse seeking relief under section 6015(b) has reason to know of the understatement ‘if a reasonably prudent taxpayer in her position at the time she signed the return could be expected to know that the return contained the * * * understatement.’ Price v. Commissioner, 887 F.2d 959, 965 (9th Cir. 1989). A taxpayer has reason to know of an understatement if she had a duty to inquire and failed to satisfy that duty. Id. A joint tax return reporting a large deduction that significantly reduces a couple’s tax liability generally puts both spouses on notice that the return may contain an understatement. See Levin v. Commissioner, T.C. Memo. 1987-67.” 2013 T. C. Sum. Op. 34, at p. 17.

Debbie was participating in the lawsuit about the basement, and the big deductions Harry claimed but later conceded were big enough for Debbie to question. And Debbie never testified she didn’t know about the bogus deductions.

“A spouse cannot obtain relief under section 6015 in a case involving disallowed deductions ‘by simply turning a blind eye to–by preferring not to know of–facts fully disclosed on a return, of such a large nature as would reasonably put such spouse on notice that further inquiry would need to be made’.” 2013 T.C. Sum. Op. 34, at p. 18 (Citation omitted).

Debbie, you’re stuck.

Or Appealing

Carol Diane Gray, star of my blogpost “Too Late But Still Timely”, 3/28/12, tries to get a Section 7284(a)(2)(A) fast-track interlocutory appeal from Judge Gale’s decision dismissing her one-day-late petition, seeking review of Appeals’ sustentation of IRS’ lien and levy in respect of her late-filed returns.

But Carol Diane gets no better treatment from Judge Gale this time than she got last time, in Carol Diane Gray, 140 T. C. 9, filed 4/25/13.

Carol Diane claims substantial difference of opinion as to whether she should get 90 days, and not 30 days, to petition, as she had contested her underlying liability, and therefore her case involves a deficiency.

Except she got a NOD and not a SNOD. And a “deficiency”, which triggers the 90 day period, is “(S)imply put, a ‘deficiency’ in income tax generally exists where the amount of tax imposed by subtitle A of the Code exceeds the amount of tax shown by the taxpayer on his return.” 140 T.C. 9, at p. 11.

But Carol Diane’s problem is that she stated the amount of tax due on her late-filed returns, but never paid any of them, and IRS never said she owed any more. Thus, no deficiency.

And the IRC distinguishes carefully between the 6213 (deficiency) and 6330 (collection) petition time limits. It’s 30 days in the latter case, and that’s what Carol Diane missed.

Moreover, Section 7284(a)(2)(A) fast-tracking is to be used sparingly. It is an extraordinary remedy, and this is not an extraordinary case.

But while it lasts, it’s “all hands off deck” at IRS.

Acting Commissioner Miller has informed all IRS personnel that “public-facing operations” (whatever that means), including but without in any way limiting the generality of the foregoing (as the high-priced lawyers say) toll-free phone ops, will be closed on May 24, June 14, July 5, July 22, and August 30, plus maybe two days of closing in August or September to be named later.

This means everybody, from the A/C to managers and line employees.

Whether Tax Court is to be sequestrated as well is unclear. Stay tuned.

Ya gotta love a Congress and President who save money by not collecting money.

Remember poor Ray Fouche, the bus operator victimized by the late and infamous Manzoor Bey? No? Then see my blogpost “The Cover-up”, 11/23/11, wherein I retold Ray’s sad tale and lauded her legal team for convincing Judge Vasquez to let Ray off the hook for the unpaid payroll taxes which the late and infamous Manzoor Bey stole.

Unhappily for Ray and her team, Second Circuit wasn’t having it. And now Ray is remanded to Tax Court to have the unpaid taxes taken out of her hide.

See City Wide Transit Inc. v. Com’r, Docket No. 12–1040–ag, decided 3/1/13, Judge Wesley.

“Some have suggested that the Commissioner of Internal Revenue (“Commissioner”) rarely loses in tax court, tax court decisions are rarely appealed, and federal circuit courts rarely reverse tax court decisions. See, e.g., James Edward Maule, Instant Replay, Weak Teams, and Disputed Calls: An Empirical Study of Alleged Tax Court Judge Bias, 66 Tenn. L. Rev. 351, 353, 401 (1999) (reviewing empirical studies). Despite some of these expectations, after losing in tax court, the Commissioner appealed, and we now reverse.”

Ray’s team argued Manzoor filed false returns to cover up his embezzlement, not to defraud the US of A. Irrelevant, says Judge Wesley.

“By concluding that the Commissioner failed to prove that Beg intended to evade City Wide’s taxes and that, at best, tax evasion was but an ‘incidental,’ ‘secondary effect’ to Beg’s embezzlement scheme, the tax court inappropriately substituted motive for intent. The statute is agnostic as to the attendant motivations for submitting a fraudulent return and only requires that the Commissioner prove a fraudulent return was filed with an intent to evade, that is avoid, paying a tax otherwise due. Thus, ‘if one of [a conspiracy’s] objectives, even a minor one, be the evasion of federal taxes, the offense is made out, though the primary objective may be concealment of another crime.’ Ingram v. United States, 360 U.S. 672, 679–80, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959). Moreover, ‘if a “tax evasion motive plays any part” in certain conduct, an “affirmative willful attempt” to evade taxes may be inferred from that conduct.’ United States v. Klausner, 80 F.3d 55, 63 (2d Cir.1996) (quoting Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418 (1943)). The Commissioner only had to prove that Beg intended to underpay the Commissioner taxes that City Wide owed when he filed a fraudulent return on City Wide’s behalf, not that he intended to avoid City Wide’s taxes for City Wide’s benefit.”

Sorry Ray and team, you get a first-class Taishoff “good try”. But IRS gets the money.

Judge Wherry is calling “Batter up!” to Jason Giambi and Kristian Giambi (and telling IRS to take the field) in Docket No. 2961-11, Order filed 4/24/13.*

The Cleveland Indians slugger and his lingerie-designing spouse, along with IRS, filed a joint status report and stip of agreed issues on 2/1/13.

The rest, according to Judge Wherry, is silence.

So let’s get on with it. Either give Judge Wherry a status report or tell him when he can expect decision documents by 5/22.

And I wish I knew what this case was about. Sounds interesting.

*Giambi 2961-11 4 24 13

Edited to add, 9/2/21: Jason and Kristian stiped out 7/1/13, but the stiped decision is sealed.

But No Explanation

No, not the 1950s television show, but the name carries weight today, 4/23, even though Tax Court issued no opinions today, and the designated orders don’t give much, barring Joe Insinga, the star of my blogposts “Did Nothing”, 3/13/13, and “A Voyage of Discovery”, 3/30/13. Joe hauls down his battle flag and consents to a dismissal of his whistleblower petition without prejudice today, with no explanation.

So here’s another unexplained phenomenon, a full Section 6673(a) frivolity penalty in Docket No. 5657-10, filed 4/23/13, nailing Laurel Ann Curtis.

Now Laurel Ann has a four-year string of deficiencies going back to 1994, with additions and penalties galore, but why the full-Monty frivolity sanctions, Judge Thornton?  How can we counsel clients without knowing exactly what will cause Tax Court to drop the Big Hammer?

Even where, as here, the frivolous taxpayer doesn’t respond to IRS’ motion for sanctions, Tom Jefferson’s “decent respect to the opinions of mankind” should impel the Court to tell us why.

Maybe Not

 When you get a SNOD, petition at once; that’s Tax Court 101. If you need to amend, see Rule 41. Leave is to be freely given where justice requires.

As for a FPAA, the best practice is the same. Petition prontito.

Judge Thornton makes the point in Wise Guys Holdings, LLC, Peter J. Forster, Tax Matters Partner, 140 T.C. 8, filed 4/22/13. I’m sorry this case goes off on jurisdictional grounds, as I’d like to hear more about Wise Guys Holdings; they sound like amusing clients.

The facts are simple enough: “R mailed to P, as W’s tax matters partner (TMP), a notice of final partnership administrative adjustment (FPAA) for W’s 2007 taxable year. Approximately nine months later, R (through an office different from the office that mailed the FPAA) mailed to P, as W’s TMP, a second FPAA for W’s 2007 taxable year. The first FPAA and the second FPAA are similar in content but are different in the contact information (and a few other minor items) shown on the face. P filed his petition in response to the second FPAA but after the statutory deadline for challenging the first FPAA had expired.” 140 T.C. 8, at p. 1.

IRS says FPAA One is the real deal, and FAA Two is to be disregarded, as Section 6223(f) bars IRS from a second bite at the partnership apple absent fraud, malfeasance or misrepresentation of a material fact. And IRS doesn’t claim Pete is guilty of any thereof.

Judge Thornton: “The first FPAA and the second FPAA are similar in content but are different in the contact information (and a few other minor items) shown on the face. The second FPAA does not set forth any partnership-level adjustment or determination that is not listed in the first FPAA.

“Petitioner attached the second FPAA to his petition underlying this case.” 140 T.C. 8, at p. 6.

Pete claims he was misled, that IRS wants to deny him and his Wise Guys their day in court on a technicality. “Petitioner counters in his objection to respondent’s motion [to dismiss for want of jurisdiction] that he filed his petition in ‘good faith’ in response to the second FPAA and he cannot be faulted for respondent’s mailing of that document or for relying on that document as ‘presumably valid’. Petitioner adds in his objection to respondent’s motion that the audit underlying this case was an ‘arduous process’, that he has been ‘frustrated throughout this process due to the lack of communication’ with respondent, and that ‘fairness and justice’ dictate that the Court not dismiss this case ‘on a technicality that the second FPAA was not valid because one had already been sent’.” 140 T.C. 8, at pp. 7-8.

No dice, Wise Guys. The second FPAA is a nullity as a matter of law, Tax Court is a court of limited jurisdiction with no equitable powers to give itself jurisdiction where Congress has not, and, most importantly, “(P)etitioner also does not advance any reason he did not timely petition the Court in response to the first FPAA.” 140 T.C. 8, at p. 11.

And FPAA Two is not a “duplicate copy” of FPAA One, which is authorized by Section 301.6223(f)-1(a) of the Regulations, under circumstances like the original being lost.

Tax Matters Partners, read and heed; send in that petition at once. And five-percenters and notice partners (Section 6226(b)(1), check in with the TMP and be ready to roll on Day 91.

Finally, TMPs: remember you are partners first and tax matterers second. See my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors)”, 1/5/11.

With a respectful bow to Wm Blake, I’m returning to a previous blogpost “No Good Deed”, 4/18/13, and the story of Danial Robert Martin and Christina Martin, 2013 T.C. Sum. Op. 31, filed 4/17/13.

You’ll remember than Danial wanted to help his unemployed, sickly ex-wife Ruth by increasing her spousal support, without going back to court. After all, they both agreed, she needed the money, and what judge would say no?

Danial wanted a deduction for alimony, and he had been taking one for the previous three years at the rate fixed by their divorce decree, with no apparent ill effects.

But there was no contemporaneous documentation of the increase, so IRS torpedoes Danial’s enhanced deduction, and CSTJ Panuthos agrees.

Now why do I rehash this? Because fellow tax blogger Peter Reilly over at Forbes picked up on Danial’s plight and discoursed at length on the unfairness of the result; and he very kindly mentioned I had blogged the case first. But Pete omitted CSTJ Panuthos’ rationale for his decision.

Symmetry.

If one party pays a deductible expense, the receiving party must recognize  income. Now whether the receiving party’s recognition triggers taxation of that income is another story. But income there must be.

CSTJ Panuthos: “Allowing petitioner to deduct the increased payments to Ruth under sec. 215(a) would result in an asymmetry, since the increased payments were not made pursuant to a written divorce or separation agreement, and would therefore not be includible in Ruth’s gross income under sec. 71(a).” 2013 T. C. Memo. 31, at p. 7, footnote 2.

Again, see my blogpost “The Magic Paper Saves the Deduction”, 4/7/11.

But it won’t help you even if you do hide. On this Friday, 4/19, with no opinions out of Tax Court, STJ Lew (The Right Way) Carluzzo has this designated admonition for the peripatetic Robert Schulz, the founder and an officer of various iterations of We The People Foundation For Constitutional Education, Inc., Docket No. 20999-10 L, filed 4/19/13.

We The People, etc., (hereinafter “wee peeps”) may or may not be educational and constitutional, but its Section 501(c)(3) tax exempt status was retroactively revoked, and Mr Robert signed a Form 872 extension for assessment of tax, interest, penalties, fire and slaughter.

Within the extended time thereby fixed, IRS sent a certified letter or two, assessing tax, etc., to the last known address of the wee peeps and Mr Robert (coincidentally the same address on Ridge Road). No one says either Mr Robert or his wee peeps had any other, and all agree Mr Robert wasn’t there; in the immortal words of Willie Nelson, he was on the road again. Extensively.

But not one to leave his homestead vacant and broom-clean, Mr Robert turned the place over to one Michael F. Bodine, also an agent of the wee peeps, who “‘only occasionally’ left Ridge Road. While at Ridge Road Mr. Bodine performed numerous and various services for each petitioner, including collecting petitioners’ mail.” Order, p. 2.

Mr Robert, always mindful that the Revenoors might take advantage of Mr Bodine’s naïveté, strictly enjoined Mr Bodine not to receive, sign for or otherwise reduce to his possession, any certified mail from anyone.

Mr Bodine, like Simonides’ Lacedaemonians, proved faithful to his trust. The USPS contract deliverer, baulked of attempted delivery, marked the letters “refused” and returned them to the IRS.

Not refused, says Mr Robert on his return, but rather unclaimed.

You can guess what’s coming, but my natural loquacity compels me to tell you anyway. As neither Mr Robert nor the wee peeps petitioned the deficiencies, IRS files liens and/or levies. Mr Robert and the wee peeps ask for a CDP whereat they want to contest the deficiencies.

Never got the letters, says Mr Robert.

Mox nix, says STJ Lew.

“Under the circumstances, we attach little significance to the ‘refused’ stamp shown on the envelopes in which the deficiency notices were mailed. We also attach little significance to where Robert Schulz was located as of the date the Forms 3849 were placed in petitioners’ mailbox. After all, the deficiency notices are not addressed to him, and he is not a petitioner in this proceeding.

“We find it more significant that at the time the deficiency notices were issued and mailed, and as of the date the Forms 3849 with respect to the deficiency notices were placed in petitioners’ mailbox, petitioners had an agent at their home office, and that one of that agent’s responsibilities was to collect petitioners’ mail while Robert Schulz was traveling. The fact that the agent was not authorized by petitioners to sign for certified mail is tantamount to a deliberate failure to claim the deficiency notices, and that deliberate failure constitutes receipt, albeit constructive, of the deficiency notices within the meaning of section 6330(c)(2)(B).” Order, p. 3. (Citation omitted).

It’s trial time, Mr Robert. And no, you can’t contest the deficiencies.