That’s STJ Robert N. Armen. And even confronted with frivolity merchant Guy Decker, Docket No. 30559-12, filed 6/6/13, STJ Armen cuts Guy some slack.

It’s the typical failure-to-report-wages, with protester overlay and the obligatory quote from Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984). Apparently Guy sent in a 1040 with zeros, so IRS hits Guy for tax, interest and failure-to-pay addition.

IRS gets summary judgment, as Guy disputes no facts. But only for tax and interest.

STJ Armen: “Although petitioner did not raise the issue in either his petition or his Objection to respondent’s motion to dismiss, the record indicates that respondent erroneously determined the addition to tax under section 6651(a)(2) based on petitioner’s ‘total corrected tax liability’ of $18,451, less allowable payments of $405. (Emphasis added.) However, the addition to tax under section 6651(a)(2) is based on a taxpayer’s failure to pay the amount shown as tax by the taxpayer on the taxpayer’s return. Form 4549, which is an integral part of the September 26, 2012 notice of deficiency, indicates that the ‘total tax shown on return’ was zero. Thus, as a matter of law it cannot be said that petitioner failed to pay the amount shown as tax by him on his return.” Order, p. 2.

After all, Guy said zero and paid zero.

STJ Armen has a heart.

Those of us who loved to play Parker Bros.’ Depression-era anodyne will remember drawing that card, with the inevitable agony or ecstasy. If our younger sibling had houses and hotels, it was game-over, followed by weeping, wailing and gnashing of teeth. If Boardwalk were still no-one’s-land, and we could afford the trophy property, we jumped on it. If neutral and we could not, we knew that relief was around the corner, as on our next turn we would we pass “GO” and collect our $200.

Oh those days, “gone alas like our youth, too soon.”

But the Supremes handed that ticket to Historic Boardwalk Hall, LLC, New Jersey Sports and Exposition Authority, Tax Matters Partner, Docket No. 11273-07, telling the taxpayer to take a walk (where not specified).

So Judge Goeke gets to push the parties around (in an old-fashioned Atlantic City boardwalk rolling chair, I mean; although an alternative meaning is entirely possible). The Order in this case was filed 6/5/13.

For background, see my blogposts “Social Engineering Trumps the Code”, 1/3/11, and “Honor Your Partner?”, 9/3/12.

To summarize, HBH was a team-up by NJSEA and Pitney-Bowes, the postage meterer, to rehab an historic structure on the Boardwalk in Atlantic City and give P-B big Section 47 tax credits. But unlike the ditty made famous in the June Haver and George Montgomery 1946 classic, life wasn’t peaches and cream. IRS blew up the deal, Tax Court found for P-B in 136 T. C. 1, filed 1/3/11, but the mean ol’ Third Circuit reversed and remanded.

So now for a quick Rule 155, no?

Not so fast. When Judge Goeke asked for supplemental briefs, P-B said they filed for certiorari with the High Court. “On May 28, 2013, the Supreme Court denied certiorari to petitioner (2013 WL 249846, 81 USLW 3431 (May 28, 2013)). The parties telephonically contacted the Court stating that because the parties could not agree upon the scope of the mandate, a joint written status report would not be filed and requested a telephonic conference call. That conference call took place on June 4, 2013.” Order, p.1.

So Judge Goeke wants each side to set forth what they think Third Circuit wanted Tax Court to do.

But Judge Goeke skips the hundred-year-old admonition from the Supremes anent remands: “That [lower] court cannot vary it, or examine it for any other purpose than execution; or give any other or further relief; or review it, even for apparent error, upon any matter decided upon appeal; or intermeddle with it, further than to settle so much as has been remanded.” In re Sanford Fork & Tool Co., 160 U.S. 247, 255 (1895). Depending, of course, upon what actually was remanded.

So again we  take a walk on the Boardwalk.

But Judge Marvel Hangs Up

IRS tries to play telephone tag with Pamela Lynn Brooks in 2013 T. C. Memo. 141, filed 6/4/13.

Pammy is an IRS tax compliance officer, a reviewer of returns who messed up her own returns for the years at issue.

Her case is also interesting for the capital loss argument, which I’ll briefly summarize before getting to the telephone story. Pammy made some improvements at her own expense to mother-in-law Beulah’s residence, based on m-i-l Beulah’s promise to give her a cut of the profits when she sold. Though Pammy lived in the place for a short while, she vacated prior to sale. M-i-l Beulah died, the property was sold, and of course Pammy got nothing until Pammy sued, and settled for about half what she had spent to make the improvements.

That’s enough for Judge Marvel to allow the loss, even though Pammy had no ownership interest in, and no other enforceable legal right to, the house. Judge Marvel says “joint venture” and that can be an oral agreement under State law (CA, where else?). Investment was made with expectation of profit, had economic substance and an enforceable agreement.

Could also be constructive trust: family relationship, action taken in reliance.

Now for the telephone. You remember the Section 4251 telephone excise tax was trimmed by the courts and IRS offered refunds per Notice 2006-50, ultimately tacking a line onto the 2006 Form 1040 to let taxpayers take the telephone excise tax as if it were income tax paid. Well, Pammy claimed $768 in credit, and IRS said no.

Judge Marvel passes: “Although neither party contends that we lack jurisdiction to decide whether petitioner claimed an excessive telephone excise tax credit, we may question our jurisdiction sua sponte. The Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. Section 6213(a) of subchapter B authorizes the Tax Court to redetermine a deficiency provided a timely petition is filed. Section 6211 defines a deficiency as the amount by which the tax imposed by subtitle A or B or chapter 41, 42, 43, or 44 of the Code exceeds the amount of such tax shown on the taxpayer’s return and the amount of such tax previously assessed.

“Section 4251 imposes the telephone excise tax and section 6415 allows a taxpayer to claim a telephone excise tax credit. See also Notice 2006-50, supra. Thus the excise tax and credit are not properly part of an income tax deficiency determination. See sec. 6211(a). Accordingly, we do not have jurisdiction to determine the proper amount of petitioner’s telephone excise tax credit.” 2013 T. . Memo. 143, at pp. 37-38. (Citations and footnote omitted).

This is a non-rebate refund, and therefore Tax Court can’t touch it. IRS is trying to use income tax methods for non-income tax issues, and Judge Marvel hangs up on that.

Section 469 incomprehensible? Maybe to Professor George S. Jackson, who in the October 24, 2011 edition of Tax Notes “states that section 469 contains ‘almost 4,500 words’  (we did not count) and ‘exemplifies why federal tax law is incomprehensible for most citizens.’ George S. Jackson, ‘Passive Activity Limitations: Time for a New Paradigm?’, 133 Tax Notes 447, 459 (2011).”

The quote is from Peter H. Hofinga and Margaret M. Wong, 2013 T. C. Sum. Op. 43, filed 6/3/13, at p. 5.

Nothing daunted, STJ Lew (The Right Spelling) Carluzzo sails right in: “Describing section 469 as ‘incomprehensible’ is probably an overstatement; that section, however, is hardly uncomplicated. The dispute between the parties in this case, however, allows us to avoid a discussion of many of the complexities of section 469, and a summarization of the relevant provisions of that section is sufficient.” 2013 T. C. Sum Op. 43, at p. 5. (Footnote omitted).

And barring the neologism “summarization” (how about just “summary”, STJ Lew?), STJ Lew does just that.

It’s the usual “rental realty is always passive” meets material participation meets the $150K AGI limit meets real estate pro. And that’s the 750 hour barrier.

Pete and Maggie elect to treat all their rentals as a single activity: good move. If you want to be a pro, elect “all”, unless there’s some overriding reason for compartmentalizing. So Pete does materially participate, taking all the rentals together. But the $150K AGI ceiling prevents Pete from taking rental losses against ordinary income. If AGI exceeds the magic number, you’re still passive even if you participate.

So Pete’s only hope is the Section 469(c)(7) real estate pro, the 750-hour floor. You have to log (and the operative word here is “log”) a minimum of 750 hours of material participation per tax year, and at least half of all your personal services in all your trades or businesses must be in real estate.

But Pete, who really ran the show, is on the disabled list and, despite continuances, can’t make it to trial, so Maggie is on her own. And she admits she’s not a pro.

Pete did nothing but real estate, so he has the one-half test beat.

STJ Lew: “Ideally, a taxpayer who claims to be described in section 469(c)(7) would maintain a contemporaneous log or record showing with particularity the amount of time devoted to the rental real estate activity on an event-by-event basis. Ideally, the log would be detailed enough to allow for someone who reviewed it to make an informed judgment as to the accuracy of the information reported. The creation and availability of a detailed log is important, especially if that reviewing ‘someone’ is an Internal Revenue Service employee considering the log in connection with an examination of the taxpayer’s return on which rental real estate losses are deducted. Apparently, petitioners were not aware of the importance of keeping such a log and, as noted, neither kept a log during either year in issue.” 2013 T. C. Sum. Op. 43, at p. 8. (Citations omitted, but read them.)

But there is a saver. Reg. Section 1.469-5T(f)(4) provides for an “any reasonable method” test. There needn’t be a contemporaneous log, but appointment books, calendars and narrative summaries can be acceptable.

Unfortunately, what Maggie produces conflates her hours with Pete’s, and only Pete’s hours count. Also, Pete employed managing agents to do some of the work, so Maggie’s logs (and she did them twice) can’t really substantiate the requisite hours for Pete.

STJ Lew notes that Maggie’s testimony about what Pete did probably was hearsay, but as this is a small-claimer, he’ll let it in anyway. Especially as he’s going to find for IRS, which he does.

Takeaway- If you want to be a pro, get one of the timekeeping software programs (like lawyers use) and enter your hours every day as you do the work. Specify the properties (give each one a billing code), what you did and when you did it–every phone call, every e-mail. As Diana Ross and the Supremes, and the Temptations, put it in their 1968 hit, “Every minute, every hour, I’m gonna shower you” with data and more data, IRS. As Diana and the guys put it “I’m Gonna Make You Love Me,” IRS.

And tell ‘em STJ Lew made you do it.

No, not Wolfgang Petersen’s 1984 fantasy “Die Unendliche Geschichte”, although this is one that Grandma and Mommy might have called “a ganze geschichte”. We now come to  Act VI (or is it VII?) of Arthur I. Appleton, Jr., Petitioner and The Government of the United States Virgin Islands, Intervenor, Docket No. 7717-10.

My fellow tax masochists and the terminally insomniac will remember 2013 T. C. 14, filed 5/22/13, wherein Judge Jacobs (that’s His Honor Judge Julian Jacobs, a/k/a Big Julie, to you, hereinafter JJJBJ) gave IRS the right-about-face and marched out Artie A. and the Virgins unspotted by any deficiency or penalty.

So JJJBJ enters a Decision and Order granting summary judgment to Artie A. and the Virgins.  See my blogpost “Farewell to the Virgins”, 5/22/13. The end, right?

No, because JJJBJ vacates his order to allow IRS, the VIBIR and a demi-brigade of lawyers to view the MOU, namely, the memoranda of understand [sic] and procedural agreements between the United States Internal Revenue Service and the U.S. Virgin Islands Bureau of Internal Revenue, with a view to appealing JJJBJ’s Decision and Order, as soon as it gets re-entered after he modifies a previously-entered protective order sealing the MOU from the common view.

Just when you thought it was finally over.

“Old lawyers never die, they just lose their appeal.”