Down at National Harbor yesterday, one of the TIGTA Deputy IG’s, R. David Holmgren, gave us an overview of what TIGTA does. I asked him after the lecture why TIGTA didn’t deal with the unending stonewalling by the Whistleblower Office, which seems to spend its waking hours denying claims when they’re not claiming that they haven’t determined anything. I cannot disclose his reply, here or elsewhere, as I asked informally.

See my blogposts “The Whistleblower Blows It”, 6/20/11, and “Qui Tam?” 9/12/12. In the former, I commented upon the case of William Prentice Cooper, III, 136 T.C. 30, released 6/20/11. So does STJ Daniel A. (“Yuda”) Guy, Jr., in blowing up would-be whistleblower Roy J. Meidinger, Docket No. 16513-12W, in a designated hitter filed 8/30/13.

The usual story: Roy turns up alleged skullduggery, sluggery and thuggery at a 501(c)(3) and drops a Form 211 on Bullet Bob Gardner, the retiring chief of the Whistleblower Squad. Remember Bullet Bob and his skirmishes with would-be Whistleblower Joe Insinga? No? Then check out my blogpost “A Voyage Of Discovery”, 3/30/12.

Here’s STJ Yuda’s story: “The Whistleblower Office forwarded petitioner’s information to the IRS Exempt Organizations Division and the Large Business and International Division. After reviewing petitioner’s original information and supplemental information, the Commissioner prepared Form 11369, Confidential Evaluation Report on Claim for Award, explaining his decision not to proceed with an administrative or judicial action against the taxpayers in question. … Robert Gardner, the Program Manager for the Whistleblower Office, sent a letter to petitioner stating that the information he provided did not result in the collection of any proceeds, and, therefore, he was not eligible for an award under section 7623.” Order, p. 2.

Roy claims IRS abused its discretion, but IRS counters with the Cooper case–no money, no award.

Roy comes back, claiming he had a contract with the IRS, and cites the Tucker Act, 28 USC §1491(a), and demands specific performance and binding arbitration.

Of course, that argument bites the dust. Judge Yuda says that Section 7623 controls Whistleblowing, and doesn’t go into the statutory language that places jurisdiction over Tucker Act claims with the Court of Federal Claims or the USDCs, but leaves out Tax Court.

Not surprisingly, Roy’s demand for relief doesn’t even get the usual “we ain’t got no equitable jurisdiction”, and anyhow Tax Court couldn’t order binding arbitration even if they did have equitable jurisdiction.

So Roy is tossed. “It is well settled that the threshold for a whistleblower award is the Commissioner’s collection of proceeds upon which an award can be based. That threshold not having been crossed here, petitioner is entitled to no award. There is no genuine issue as to any material fact, and we will dispose of this case in respondent’s favor on the basis of Cooper v. Commissioner, 136 T.C. at 601.” Order, at p. 3. (Footnote omitted).

OK, so as far as Tax Court is concerned, once IRS says there’s no money, that ends the Whistleblower’s relationship with IRS. To quote Mr. Kipling,  “If a year of life be lent her/If her temple’s shrine we enter/The door is shut/We may not look behind”.

Now lest I be misunderstood, I agree that the Courts’ role in reviewing administrative determinations by the Executive branch should be limited. We still have some vestige of a Constitutional separation of powers. There are places where courts cannot, and should not, go.

But the administrative agency here has its own check and balances, provided by the Legislative branch. There’s TIGTA, whose mission is “(T)o provide integrated audit, investigative, and inspection and evaluation services that promote economy, efficiency, and integrity in the administration of the internal revenue laws.”

Might could be y’all should take a look at how the Whistleblower Office is doing.

See my blogpost “A Dangerous Thing”, 4/13/11, for my take on Alexander Pope’s famous verses on drinking deep from the Pierian spring.

Well, another Alexander, Dr. Stanley by name, and Ruth, his wife, didn’t even sip much, and it helped them avoid the 75% fraud hammer from the hand of Judge Goeke in Stanley L. Alexander and Ruth A. Alexander, 2013 T. C. Memo. 206, filed 8/29/13, which I finally get to blog as I’m homeward bound from National Harbor, MD,  and the 2013 IRS Nationwide Tax Forum, that well-known fount of knowledge.

Stan and Ruth get hooked up in one of those offshore employee leasing roundy-rounds. Ruth claims to be just a farm girl, but she did bookkeeping for Stan and her pleas of innocence are belied by her participation via her grantor trust and the absence of any records of her farming activity.

For a quick review of the offshore leasing game, see my blogpost “What Not To Say”, 11/3/11, the tale of Merry Perry Browning, whose case is cited by Judge Goeke here. Instead of the credit cards Merry Perry and Mrs. Merry Perry used, Stan and Ruth used revolving credit lines from their offshores, and there were many, to funnel the cash parked offshore back to Stan and Ruth. From Ireland to Isle of Man to Hungary runs the tangled trail, and Judge Goeke runs them all down.

If old-time wheeling and dealing sings to you, read the full opinion.

Of course Stan gets nailed for underreporting, failure to file, failure to pay, and accuracy, and his controlled corporation gets nailed for nonpayment of withholding taxes. As aforesaid, Ruth is in there with Stan, jointly and severally.

Now Stan is a retired Air Force light bird and a plastic surgeon of repute. He was an honors graduate of Otterbein College with an MD from Ohio State. Ruth had a BFA from Wright State in Dayton, OH, and took accounting and computer courses thereafter. Not a stupid couple, and Judge Goeke makes that clear.

So after blowing up the employee leasing scam and eviscerating the farming claims and the unsubstantiated deductions, Judge Goeke turns to penalties. And he hands out plenty, to Stan and his corporation, and Ruth.

But when it comes to fraud, Judge Goeke says IRS didn’t prove it clearly and convincingly. IRS shows that Stan was in the thick of the wheeling and dealing, and Ruth was by his side, although the deals were concocted and run by a couple of lawyers Stan met through an offshore peddler of leasing deals.

But that’s not enough for Judge Goeke. “While Dr. Alexander is highly educated and a very accomplished medical doctor, respondent [IRS] did not establish that he understood complex tax law issues. To be sure, Dr. Alexander has a basic understanding of corporate structures and filed his own tax returns, but nothing in the records establishes that he understood the complex tax laws involved with the OEL [overseas employee leasing] transaction, nor that he possessed the knowledge to determine that the OEL transaction did not comply with applicable tax laws. Similarly, Mrs. Alexander does have some accounting education, but she does not possess the education or experience for the Court to hold her to a higher level of understanding when it comes to the OEL transaction.

“The evidence shows that Messrs. Kritt and Reiserer [the promoters] explained the OEL transaction in detail to Dr. Alexander and assured him the plan complied with the tax laws. There is nothing in his education or experience that would indicate that he should have known differently. Messrs. Reiserer and Kritt structured and implemented every aspect of the OEL transaction. Dr. and Mrs. Alexander relied upon the assurance of Messrs. Reiserer and Kritt that the OEL plan conformed to the tax laws. Dr. and Mrs. Alexander do not possess the education and experience to understand that the plan did not conform to the applicable tax laws.” 2013 T. C. Memo. 203, at p. 44.

So, unlike the famous frankfurter, neither the doc nor Ruth must answer to a higher authority when it comes to knowing tax law.

Of course, their asserted good-faith reliance on the promoters gets sunk, as the promoters made the deal happen.

But maybe a little knowledge isn’t such a dangerous thing, after all.

Footnote for a lady– This is my post number 555–Triple Nickel.

The readers of my blogposts (“the few, the happy few”, to paraphrase a much finer writer) should not think I have a grudge against tax matters partners. It’s true I’ve stated that their duties as partners exceed those as tax matterers; see my blogpost “Bang – A Warning to Tax Matters Partners (and their advisors)”, 1/5/11, and “Wise Guys?”, 4/22/13. I’ll come back to “Wise Guys?” later.

But I feel it necessary to remind the TMPs, as they’re known in TEFRA circles, and their colleagues the notice partners and the five-percenters, that they’re all in it together. And therefore the exercise of diligence and prompt internal communication are essential.

As an ornament to the Supreme Court once remarked, “A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior… the level of conduct for fiduciaries [has] been kept at a level higher than that trodden by the crowd.” (Citation omitted).

So today’s illustration is found in 2013 T.C. Memo. 202, filed 8/28/13, involving Biomage, LLC, Front Row Enterprises LLC, Tax Matters Partner. It’s the usual FPAA and Tax Court petition case.

IRS moves to dismiss the petition as untimely.

Front Row claims IRS never mailed it the FPAA, but if it did, then the petition was timely, as they sent it within 150 days of the date that IRS mailed a notice partner a copy of the FPAA.

Ch J Thornton brushes aside the claim by Front Row that they never got the FPAA, and that the USPS Form 3877 proof of mailing misstates the tax year involved; the IRS employee who prepared the 3877 swears it was a mistake. And USPS confirms delivery of the certified letter to the address given by Front Row.

“Petitioner asserts alternatively that if the IRS mailed an FPAA to petitioner, then the petition was filed timely as to the notice partner copy so as to invoke the Court’s jurisdiction. To that end, petitioner contends that it filed the petition as a partner other than the TMP within 150 days of the day that the IRS mailed petitioner the notice partner copy in its capacity as a notice partner of Biomage. We disagree with petitioner as to its understanding of the 150-day petitioning period (i.e., 90 days for the TMP plus 60 days for notice partners). Contrary to petitioner’s suggestion that the period begins on the day that the notice partner copy was mailed to petitioner, section 6226(a) and (b) requires that the count begin on the day that the FPAA was mailed to the TMP. See Han Kook LLC I-D v. Commissioner, 102 T.C.M. (CCH) at 259. The count, therefore, began on June 4, 2010, and petitioner’s petition was untimely.” 2013 T. C. Memo. 202, at p. 12.

So Han Kook cooks Biomage’s goose (sorry, guys).

And as I said in “Wise Guys?”, “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.”

No, other plant life, namely green supplements, flax seeds and D-3, in the case of Kenneth Delano Humphrey, 2013 T. C. Memo. 198, filed 8/28/13.

So Paul Simon doesn’t feature in today’s blogpost.

KD was an officer in the US Dep’t of Homeland Security during the year at issue, and scheduled numerous deductions in his Schedule A, most of which Judge Goeke blows off for want of substantiation. But KD’s plant life gets a juridical OK.

“As part of phytotherapy, petitioner claimed as medical expenses the purchase of various natural supplements (green supplements, flax seeds, and D-3) to alleviate his prostate cancer. The regimen was based on medical guidelines by Johns Hopkins Medical Urology, Harvard Medical School, and the Mayo Clinic. Petitioner has been under the care of two doctors since 2008.” 2013 T. C. Memo. 198, at pp. 3-4.

“Petitioner seeks to deduct supplements and health foods as a medical expense. Medical care deductions are not strictly limited to traditional medical procedures but include amounts paid for affecting the structure of the body. Medical expenses for nontraditional medical care may be deductible under the broad view of medical care. The term ‘medical care’ includes amounts paid ‘for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body’.” 2013 T. C. Memo. 198, at p. 7. (Citations omitted).

Judge Goeke is willing to give KD the benefit of the doubt: “To prevail, petitioner must show that the health foods and supplements cure, mitigate, treat, or prevent his prostate cancer or affect any structure or function of his body. To be deductible, the treatment must be for the specific purpose of alleviating the prostate cancer, rather than for the general well-being of petitioner. Sec. 1.213-1(e)(1)(ii), Income Tax Regs. It is difficult to determine the difference, but here we feel petitioner has proven that the health foods and supplements were for alleviating his prostate cancer rather than just for general health.

“Petitioner provided receipts from a discount health food store to substantiate purchases of green supplements, flax seeds, and D-3. It is pertinent to determine whether the health foods and supplements were prescribed by a doctor. From the record we find that the expenses for health foods and supplements have been substantiated. Petitioner provided credible testimony that his doctors suggested the health foods and cited medical guidelines by Johns Hopkins Medical Urology, Harvard Medical School, and the Mayo Clinic.” 2013 T. C. Memo. 198, at pp. 8-9.

Takeaway- Don’t overlook those supplements. Good medical evidence wins the day.

 Will deter that obliging jurist Judge Gustafson from bringing a case on to trial. Although Frank is dead and Dulce’s health has seriously deteriorated since they petitioned in 2009, Judge Gustafson isn’t prepared to wait much longer to deal with whatever the issues might be in Estate of Frank San Pedro, Deceased, Alberto E. San Pedro, Personal Representative, and Dulce San Pedro, Docket No. 11905-09, filed 8/28/13.

Trial is set for a date certain less than three months away, but apparently Alberto asked for a continuance. Judge Gustafson doesn’t say who wants the time-out, but in any case he’s not obliging this time.

“The record shows that Frank San Pedro died in July 2009 (several months after the petition was filed) and that Dulce San Pedro’s health has seriously deteriorated. While such circumstances are sometimes a reason to continue a case, a continuance should be granted only if the passage of time will better enable the parties to try the case. In a circumstance like this, a continuance may have the disadvantage of making it only more difficult to locate witnesses and documents relevant to the case. The parties should therefore be aware that the Court will not reflexively grant any further continuance.” Order, at p. 1.

So file a status report, guys, and get with it.

On tour this week with the IRS Nationwide Tax Forum, I post here a rare personal reflection.

Echoing Paul Simon’s 1965 hit, I’m sitting in the National Harbor Gaylord Resort Hotel, with a railway ticket to my destination, but with two more days of CPE (gotta get those hours) ahead.

And I’m bored.

I’ve got no gripe with the lectures or the lecturers, but the 2013 tax law changes have lost their novelty, the Affordable Care Act has become this year’s l’Affaire Dreyfuss (take a look at that splendid Caran d’Ache cartoon “they spoke of it”), and there’s not a lot new with SFRs and ASFRs, and preparer penalties.

There is a new Form 8938 Statement of Foreign Assets to go with 1040s, and FBARs are now all going to be filed electronically, but that has been circulating for a while on the IRS website. Moreover, discussions of tax forms are not what I do best.

And Tax Court, the source of my blogposts, today has two pedestrian T. C. Memos only, and no interesting orders.

One reiterates yet again the TFRP rule that the entity’s liability has nothing to do with the responsible person’s obligation to remit the withheld funds, even when the entity bears the intriguing title of Hey Baby Enterprises, Inc. The case is Pamela L. Lengua, 2013 T. C. Memo. 197, filed 8/27/13, but the corporate name is the best part of the case.

Next is an old protester trying to relitigate his 1991 loss, and getting yet another Section 6673 jab from that usually welcoming, but now unsympathetic, jurist Judge Lauber. I pass.

So this evening I again turn to Mr. Simon: “But all my words come back to me/ In shades of mediocrity.”

I wish I were homeward bound.

Whoever your partner might be. No, not Historic Boardwalk Hall; see my blogpost “Honor Your Partner?”, 9/3/12. This time it’s Jimastowlo Oil, LLC, et al., John J. Petito, Tax Matters Partner, 2013 T. C. Memo. 195, filed 8/26/13*, a day to keep us bloggers blogging far into the night.

Judge Halpern is seeking the source, not Perrier, but the source partner, the partnership whence cometh all the FPAAs that Jimastowlo and its buddy Oil Coming We Are Humming LLC are fighting about. IRS hit Jim and Hum with FPAAs, claiming Section 469 passivity and imposing accuracy penalties.

But Jim and Hum were themselves owners of a couple of working interests in oil leases, the chief worker of which was Energytec, Inc., who sold Jim and Hum “income programs” in some played-out Texas wells.

After fighting through the FPAAs, Judge Halpern thinks maybe the real partnership is among Energytec, Jim and Hum, and so he has no jurisdiction because Energytec, the “source” partner, isn’t in the mix.

For those of us who don’t do oil deals, a working interest has been defined by Hank Black, the law dictionarian, as “(T)he rights to the mineral interest granted by an oil-and-gas lease, so called because the lessee acquires the right to work on the leased property to search, develop, and produce oil and gas, as well as the obligation to pay all costs.” 2013 T. C. Memo. 195, at p. 7, footnote 3.

OK, but were Energytec, Jim and Hum partners? Now usually in these deals there’s an operating agreement, spelling out who does what and who gets what and who pays what. But here there was none; the wells were worked by Energytec or its designee, who drilled, collected, sold, kept the books and distributed the net. Neither Hum nor Jim could do anything, take any oil or sell any oil. And when Energytec finally got around to proffering operating agreements, Hum and Jim refused to sign, for the reasons hereinafter in the next succeeding paragraph set forth, as the high-priced lawyers say.

At first Jim and Hum got paid based on the projected yields from the leases, but the projections were wildly optimistic, the payments got cut, and Jim and Hum wound up owing Energytec money. Jim and Hum yelled “Ponzi scheme” and sued. And claimed theft losses. Energytec filed chapter (what else?), and so far no decision on the fraud claims.

But was it a partnership? No, says IRS, so nail Jim and Hum on the FPAAs we gave them. Yes it was, say Jim and Hum, so toss the case for no jurisdiction.

Energytec never filed a 1065. Their 1120 said they were in the oil business, but made no reference to any passthroughs. Jim and Hum each filed their own 1065s, but said nothing about source partnerships; they were simply in what my daughter the Texan calls the “awl bizniz”.

So Judge Halpern checks out the statute and regulations. A simple expense-sharing arrangement is not a partnership, but when two or more are gathered together in a business entity, and aren’t a trust or corporation, they are a partnership.

And that means TEFRA, and FPAAs, and partnership-level and partner-level computations. And affected items, those that show up on partners’ returns but are passed through from the partnership.

Judge Halpern: “Because affected items depend upon partnership-level determinations with respect to partnership items, any issuance of notice of deficiency or FPAA regarding affected items, and any resulting litigation, must await the outcome of the partnership proceeding or the expiration of the time to initiate one. That rule applies equally to affected items reported by a ‘pass-thru’ partner that were derived from a lower tier or ‘source’ partnership.” 2013 T. C. Memo. 195, at p. 23. (Citations omitted, but Judge Halpern cites the Rawls case, the subject of two of my blogposts “Finishing the Play”, 3/26/12, and “Hail, All Hail Cornell!”, 12/5/12).

And it doesn’t matter that none of the partners knew they were partners, filed returns as partners, and even that IRS never claimed they were partners. “The principle… that we lack jurisdiction to redetermine affected items attributable to a source partnership before the source partnership-level proceedings have been completed, applies even when the members of the source partnership have failed to recognize that they have created a separate entity (i.e., a partnership) for Federal income tax purposes and have not, therefore, filed a partnership return on its behalf, and the Commissioner has neither conducted a source partnership-level audit nor issued an FPAA to it.” 2013 T. C. Memo. 195, at p. 24. (Citations omitted).

The Section 469 passivity and the penalties are partnership-level items for the source partnership, and that partnership, if it is a partnership, isn’t before Tax Court. And even economic substance and sham transaction, challenging whether there even was a partnership, are partnership-level issues. See Petaluma.

Guess what? It is a partnership. Even though some assignments of working interests were recorded late or not recorded at all, as among themselves Energytec, Jim and Hum were co-tenants. And some business was being done, however minimal. Some oil was recovered, collected, sold, and some bills were paid.

It was more than co-ownership or expense-sharing. “Each LLC was, thus, a coowner with Energytec (and others) of a working interest in an oil and gas leasehold, which working interest entitled the coowners thereof to find and extract oil and gas. To exploit the working interest, the coowners had to cooperate. During the audit years, Energytec, acting as common agent, operated the wells on a cooperative basis for the working interest owners. No working interest owner could take his share of production in kind or sell it independently of the other owners. The coowners were not merely sharing expenses. They were jointly carrying on a trade or business and dividing the proceeds therefrom.” 2013 T. C. Memo. 195, at p. 40.

Out go the FPAAs, and out goes the petition.

*jimastowlo oil 2013-195

Two 501(c)(3)s today, August 26, both Section 7428 declaratory judgments, as Tax Court releases a bushelbasketful of opinions.

First up, Partners in Charity, Inc., (“PIC”) 141 T. C. 2, filed 8/26/13. IRS revoked PIC’s exempt status retroactive to day one.

PIC was the brainchild of Chicago real estater Charlie Konkus. He claimed PIC was going to raise money to provide poor would-be homeowners with downpayments, if they could get mortgages.

What Charlie did was to get the sellers to front the downpayments, by paying Charlie the downpayments plus a little on the side, whereupon Charlie would use PIC to give the downpayment money (directly into escrow) for the buyers, and then funnel it back to the seller through the escrow at closing, thus permitting sellers to give the purchasers the downpayment, something prohibited by FHA regulations. And let the sellers charge more for their houses (as Charlie pointed out in his promotional materials). But FHA regulations allow charities to fund downpayments for the poor.

Of course, Charlie did not restrict his pseudo-largesse to the poor: anyone, rich or poor or in-between, could avail themselves; and, since Charlie had no controls to make sure his beneficence would only aid the poor, they did. Charlie hired his wife’s company to promote the business, and in two years racked up $3 million in profit.

Judge Gustafson, usually so obliging, is not amused: “Indiscriminately giving money away to anyone who will take it is not a charitable purpose, even if some of the recipients are poor people. Section 501(c)(3) requires more; it requires that the money be given away in such a way that it furthers a purpose of reducing poverty, promoting education, science, or religion, or promoting another public good. We conclude that… PIC’s DPA program did not operate for a charitable purpose.” 141 T. C. 2, at pp. 28-29.

It’s what you do, not what you say you will do.

PIC was a broker, not a charity. And IRS has discretion to revoke a 501(c)(3) exemption retroactive to day one, and here that discretion was not abused.

Next up, Judge Gustafson examines the gymnastics of Capital Gymnastics Booster Club, Inc., in 2013 T. C. Memo. 193, filed 8/26/13. Here the question is did the exempt income inure to the private benefit of insiders, and Judge Gustafson finds that it did.

The Capitalists, a 501(c)(3) athletic outfit, required member-parents to front the money for their children’s competitive efforts, in training and in competitions. Alternatively, the parents could “fund-raise”, that is solicit contributions to the Capitalists, receiving  a formulaic credit against the not-inconsequential annual membership dues and assessments for concomitant expenses connected with their offsprings’ handsprings.

“Capital Gymnastics computed the assessment at the beginning of each season by consulting with meet sponsors. Capital Gymnastics did not allow athletes to compete unless their assessment was paid in full, including any late fees. The record shows no conferring of ‘scholarships’ nor any other relaxation of this requirement.” 2013 T. C. Memo. 193, at p. 6.

But there was an out; fund-raisers and other special friends of the Capitalists didn’t pay the full freight. “For the families that chose to fundraise, Capital Gymnastics awarded points in proportion to the fundraising profit that each family generated. Each point was worth $10. The chairperson of each fundraiser also received a small number of points as an incentive to manage the fundraisers. Parents could earn additional points by filling certain board positions on Capital Gymnastics. Capital Gymnastics’ financial manager periodically tallied the points for each family and reduced the family’s unpaid assessment in dollars, according to the number of points that the family had earned.” 2013 T. C. Memo. 193, at p. 8.

The fundraisers got big discounts, the non-fundraisers (described by the Capitalists as “moochers” or “freeloaders”) got nothing.

Now fostering amateur sport competitions is a valid Section 501(c)(3) purpose, so the Capitalists’ aims are legit. What sinks them is the benefits to the fundraisers.

Exempts can’t benefit insiders or private parties. The Capitalists argue that the kids are the beneficiaries. IRS says no, it’s the fundraising parents, who are members, who are getting the benefit.

Judge Gustafson: “Applying the law to Capital Gymnastics’ facts and circumstances, we find that, in violation of section 501(c)(3), Capital Gymnastics allowed substantial private inurement to the parent-member-insiders who fundraised (by providing to those insiders relief from an economic burden in the form of ‘points’ applied to their assessments) and thereby conferred an impermissible substantial private benefit on the child-athletes of those parents only (as opposed to its child-athletes generally). Capital Gymnastics authorized parent-members to raise funds for their own benefit but under the name of Capital Gymnastics and trading on its tax-exemption ruling. Capital Gymnastics rigorously assured that its fundraising did not generally benefit all the child-athletes in its programs but rather benefited only the children of parents who did the fundraising.” 2013 T. C. Memo. 193, at pp. 19-20.

And Judge Gustafson makes clear the contrast between the occasional fundraiser (bake sale, car wash) and the Capitalists’ all-out drive. “…this is not a circumstance (like, say, a school band’s sale of candy or a church youth group’s carwash for a once-a-year event) in which the fundraising is a tiny fraction of the organization’s overall function; here, the fundraising is, instead, the admitted ‘primary function’ of the organization. This is not a circumstance in which the individual’s contribution of his share of the cost is optional or where scholarships are made available for those who cannot afford the cost. Nor is this a circumstance in which every member is required to perform fundraising and no one can buy his way out; rather, the fundraising was an option chosen by those who wanted to earn their assessments. The assessments at issue were not arguably de minimis charges that might be covered by a child’s paper route or babysitting, but rather were serious parental obligations….” 2013 T. C. Memo. 193, at p. 20.

In short, the money wasn’t spread around. No exemption.

No, not into R. M. Crawford’s 1938 “wild blue yonder”, but rather to imbibe taxational wisdom and CPE hours at the IRS Nationwide Tax Forum at National Harbor, MD, the situs I love to hate. Still, gotta get the hours. Again I’m lobbying to have the Big Show brought back to New York City.

Can’t leave out the Big Apple.

The subtitle of my blogpost “Give It Your Best Number”, 4/9/12, should serve as a warning to taxpayers who get hit with a deficiency; even before the SNOD, prepare to settle.

John V. Black, Docket No. 2260-12, filed 8/23/13 is an object lesson.

CSTJ Panuthos administers the lesson. First, the background: “…respondent [IRS] filed a Motion for Leave To File Amendment to Answer, lodging the corresponding Amendment to Answer. Respondent’s motion states that the notice of deficiency that forms the basis of this case was prepared using information returns provided by third parties. Thereafter, respondent performed a bank deposit analysis and determined that… petitioner received additional unreported taxable income from his business activity, which was not reported by third parties and therefore was not included in the original notice of deficiency. Respondent’s Amendment to Answer seeks an increased deficiency of $11,683 and additions to tax resulting from this alleged additional unreported income.” Order, at p. 1.

Sound familiar? See my blogpost “Pay The Man”, 7/31/12.

John objects to IRS’ proposed Amendment: “…petitioner alleges that he wants to settle his case and allowing respondent to amend his answer will result in ‘added costs, hassles and delay.’” Order, at p. 1.

But Rule 41, like FRCP Rule 51, is in favor of amendments.

CSTJ Panuthos: “Whether to permit such an amendment is a matter within the sound discretion of the Court. The touchstone in evaluating whether to allow an amendment is the existence of unfair surprise or prejudice to the nonmoving party. Such surprise or prejudice, in turn, rests largely on evidentiary and other considerations bearing on the nonmovant’s opportunity to respond. For instance, this and other courts may take into account whether the nonmovant would be prevented from presenting evidence that might have been introduced if the matter had been raised earlier and whether the movant delayed unduly in raising the matter.” Order, at p. 2. (Citations omitted).

In short, as we’ve seen before, the question is whether the Amendment is an ambush.

Not here, says CSTJ Panuthos: “Petitioner’s generalized allegations of hassles and delays lack persuasive specifics or value. Furthermore, we cannot find any undue delay, bad faith or dilatory motive on the part of respondent when the existence of this alleged additional unreported income was not known to respondent until respondent obtained petitioner’s bank records… in preparation for trial.”  Order, at p. 2.

Finally, CSTJ Panuthos understands what John wants, but “(W)hile we understand petitioner’s desire to settle this case based on the notice of deficiency as issued, Tax Court precedent is clear that ‘[w]e acquire jurisdiction when a taxpayer files with the Court and that jurisdiction extends to the entire subject matter of the correct tax for the taxable year.’” Order, at p.2. (Citation omitted).

Or in simple terms, once you file a petition, everything in every tax year in your petition is up for grabs.

So IRS gets its Amendment, to which John must respond.