Attorney-at-Law

Archive for August, 2013|Monthly archive page

YOU CAN’T HAVE ONE WITHOUT THE OTHER

In Uncategorized on 08/22/2013 at 16:28

That obliging jurist Judge Gustafson contradicts the title of my blogpost “You Can Have One Without The Other”, 7/31/13, but this designated hitter is not about spouses. It’s about an opportunity to contest a deficiency at the CDP stage.

The order is Albert Sofian, Docket No. 17960-12L, filed 8/22/13.

Al’s beef has to do with gains on securities sales. Al claims he never got the final notice of intent to levy, which claim Judge Gustafson says defeats IRS’ summary judgment motion to sustain Appeals’ NOD. IRS says Al had a prior opportunity to dispute. Al says no.

Al never raised non-receipt at his CDP, so IRS says he waived any chance to do so, whether or not he got the final notice of intent to levy.

Judge Gustafson says no: “On the record before us, we cannot fault Mr. Sofian for failing to effectively challenge liability at his CDP hearing. IRS Appeals’ letter… explicitly told Mr. Sofian, ‘You are not able to dispute the liability because our records indicate that you had a previous opportunity to challenge the liability under IRC 6330 when you were issued a Notice of Intent to Levy…. Therefore, you are precluded from raising the liability during this CDP hearing request.’ Appeals cannot announce such preclusions to the taxpayer and then support taxpayer-adverse outcomes by saying that the taxpayer failed to dispute the liability.

“We acknowledge that Appeals’ letter went on to say, ‘However, we will consider your original Form 1040 for the tax year… under general authority if you submit a completed and signed tax return to me within 21 days of the date of this letter’; and we have no doubt that Appeals made this offer in good faith. However, the letter made it clear that, for purposes of his CDP rights (which would include judicial review thereof) Mr. Sofian was precluded. Appeals cannot have it both ways–on the one hand telling the taxpayer that his submissions will not count for CDP purposes, but on the other hand arguing that the taxpayer’s nonsubmissions should count against him in the Tax Court’s review of the CDP hearing.” Order, at pp. 1-2. (Emphasis by the Court).

So Al will get his day in court.

However, lest Al should feel too elated, Judge Gustafson warns him that he has a double-barreled burden of proof: he has to prove he didn’t get the final notice of intent to levy, and, if he does so, then he has to prove that his liability was less than IRS said it was. Just saying “no” won’t get it.

Al seemed to think IRS has the burden of proof on his tax liability, but he is wrong, and Judge Gustafson makes it clear.

And Al and IRS must do their document exchange soon, and will be precluded from introducing anything they didn’t exchange.

Appeals may have to revise their form letter.

A TAISHOFF “OH PLEASE!”

In Uncategorized on 08/21/2013 at 16:51

In the past I’ve awarded what I call a “Taishoff good try” for a novel, if unsuccessful, argument made in Tax Court, and one for an argument that succeeded. In substantiation of the foregoing, I offer my blogposts “Whose Line Is It, Anyway?”, 2/8/12, and “A Good Excuse”, 9/28/12.

But there are arguments that fall into a different category, and one of those I shall blog today in the category of “Oh Please!”, as in “you are joking, aren’t you?”. More to come, if time permits.

Today’s recipient is Pauline T. Golit, starring in 2013 T. C. Memo. 191, filed 8/21/13. Aside from the charitable donation to an out-of-country entity (barred by Section 170(c)), some unreported income, and the usual unsubstantiated employee business deductions (although Judge Halpern generously allows her more than IRS did), none of which is noteworthy, Pauline does come up with a reporting position worthy of a Taishoff “Oh Please!”.

Pauline claims HOH filing status and a dependency deduction for Albert Salako.

After the usual walk through Section 152, Judge Halpern deals with Albert: “Petitioner has failed to show that she is entitled to the dependency exemption deduction for Mr. Salako. Petitioner claimed on her 2008 return that Mr. Salako was her son. Mr. Salako was born on January 12, 1961, and was thus 47 years old at the close of 2008. Petitioner, born in 1959, is only two years older than Mr. Salako. Thus, he cannot be her biological son, and we do not find credible petitioner’s unsubstantiated testimony that Mr. Salako is her adopted son. Petitioner does not contend, and there is no evidence to find, that she bears any other familial relationship to Mr. Salako.

“Nor has petitioner shown that Mr. Salako was a member of her household during 2008. In order for an individual to be considered a member of a taxpayer’s household, both the taxpayer and the individual must occupy the household for the entire taxable year. Sec. 1.152-1(b), Income Tax Regs. Petitioner testified that Mr. Salako lived with her only ‘temporarily’ during 2008 and with a friend for the rest of that year. Although a temporary absence from the household will not prevent an individual from being considered as living with the taxpayer for the entire year, see id., there is no evidence as to the actual length of time Mr. Salako lived with petitioner during 2008. Consequently, petitioner has not shown that Mr. Salako satisfied the relationship requirements to be considered either a qualifying child or a qualifying relative.” 2013 T. C. Memo. 191, at pp. 9-10. (Footnote omitted).

Albert is too old for qualifying child and no evidence he is disabled (although Pauline claims he is), and no evidence as to whether Pauline or Albert provided more than one-half of Albert’s support in the year at issue.

So no HOH filing status or dependent’s deduction for Pauline, but she is the first recipient of a Taishoff “Oh Please!”.

“YOU HAVE TO FULFILL THE REQUIREMENTS”

In Uncategorized on 08/20/2013 at 18:27

 I remember a colleague being confronted, many years ago, by a particularly persnickety probate court clerk whose invariable incantation was “You have to fulfill the requirements.”

Well, Judge Kathleen Kerrigan isn’t particularly persnickety, but Eric Onyango didn’t, and neither did brother Maurice, so both of Eric’s cases get tossed in Eric Onyango, Docket No. 21922-11, filed 8/20/13.

First Eric petitions, but IRS claims they never sent him a SNOD, so petition number one gets dismissed. Then Eric petitions again, for the same years, and it turns out IRS did send him a SNOD after all. So petition one gets reinstated, but IRS claims Eric was late both times.

Eric says he didn’t get the SNOD until long after the ninetieth day after mailing, and anyway he designated brother Maurice as his fiduciary before day ninety, so the SNOD should have been mailed to brother Maurice in Nairobi, Kenya.

Wrong, says Judge Kerrigan. Eric didn’t get the designation right, and brother Maurice’s later correspondence didn’t cure the defect.

The Section 6903 regulations govern.

“Section 301.6903-1, Proced. & Admin. Regs., prescribes the manner in which the notice of fiduciary relationship must be filed. First, the notice must be given by the fiduciary. See sec. 301.6903-1(a), Proced. & Admin. Regs. (‘Every person acting for another person in a fiduciary capacity shall give notice thereof * * *’). Second, the notice must be signed by the fiduciary and must be filed with the I.R.S.Center where the return of the person for whom the fiduciary is acting is required to be filed. See sec. 301.6903-2(b)(2), Proced. & Admin. Regs. Third, the notice must state the name and address of the person for whom the fiduciary is acting and describe the nature of the liability, including the type of tax and the years involved.

“Section 301.6903-2(c), Proced. & Admin. Regs., provides that if the notice of the fiduciary relationship is not filed before the sending of the notice of a deficiency to the last known address of the taxpayer, no notice of the deficiency will be sent to the fiduciary. ‘In such a case the sending of the notice to the last known address of the taxpayer * * * will be a sufficient compliance with the requirements of the Code, even though such taxpayer * * * is under a legal disability * * *’. Id.” Order, at  pp. 4-5.

Neither Eric nor brother Maurice can furnish certified mailings of the correspondence they claim gave notice, and IRS claims what they did furnish doesn’t fulfill the requirements. Judge Kerrigan agrees.

So Eric is out, and his motion to restrain collection falls because there is no appeal from the SNOD nor valid petition before Tax Court to invoke the Section 6330(c) restraint.

But Eric does get his medical evidence sealed.

Takeaway– You have to fulfill the requirements.

IF IT MOVES, IT’S A HOME

In Uncategorized on 08/20/2013 at 17:08

A reminder to preparers from that obliging jurist Judge Gustafson: a house on wheels is still a house, and may suffice as a qualified personal residence for Section 280A (if you can show exclusive business use) and Section 163 purposes. The case is Keith Dunford and Ena Dunford, 2013 T. C. Memo. 189, filed 8/20/13.

Keith and Ena traveled a lot, and claimed it was for business, but their recordkeeping didn’t substantiate their claims. And they already had a house, rooted firmly to the soil of Quincy, Illinois.

I’ll spare you Judge Gustafson’s bean-count through the claimed deductions and NOL. Even though IRS unaccountably allowed Keith and Ena to deduct expenses for which they were reimbursed, nothing is new here.

Section 163 allows qualified principal residence mortgage interest deduction for principal residence plus one other elected by taxpayer, but neither the statute nor the regulations prescribe when and how to elect, and the caselaw permits election even during litigation.

So Keith and Ena’s Beaver Contessa (great name!) motor home, encumbered by a Bank of America mortgage on which Keith and Ena paid interest, qualifies for the deduction.

Keith’s claim that he used a countertop in the Beaver Contessa for his business operations doesn’t get it: “The Dunfords did not prove that there was an identifiable portion of their motor home that was used exclusively for business purposes. The area they seemed to put forward as the home office was the countertop that Mr. Dunford used as a desk; but (1) they did not make any showing of the percentage of the vehicle that constituted this area (it would be a very small percentage), and (2) it is implausible to suggest that, in the cramped quarters of a motor home, an unclosed area like the countertop would somehow be exclusively reserved to business activity. Accordingly, all deductions (other than deductions for interest expenses) the Dunfords claimed ‘with respect to the use of’ their motor home are disallowed under section 280A(a).” 2013 T. C. Memo. 189, at p. 17

IRS also claimed that, inasmuch as Keith and Ena lived in the motor home, their claimed Section 162 travel expenses weren’t for travel, because they were never away from their tax home. See my blogpost “Home Is Where the Heart Is’, 7/21/12. But IRS had allowed some expenses during examination, and didn’t change position in the litigation, so Judge Gustafson blows off that argument in a footnote.

“The Commissioner’s principal contention as to travel expenses is that the Dunfords have not substantiated them, beyond what the Commissioner has conceded. In response to a question raised by the Court, the Commissioner contended after trial that, for tax purposes, the Dunfords had no ‘home’ … (other than the motor home, from which they were not ‘away’ while traveling), so that ‘Petitioners are not entitled to deduct expenses arising from their travels… in amounts greater than already allowed by respondent.’ (Emphasis added.) Logically, the Commissioner should ‘allow’ zero away-from-home travel expense amounts if petitioners had no ‘tax home’; but he does not retract his prior concession. Since we uphold the Commissioner’s primary contention (lack of substantiation), and since the Commissioner continues to concede the deductibility of the amounts that were substantiated, none of the amounts in dispute turn on the ‘tax home’ issue, so we do not address it.” 2013 T. C. Memo. 189, at pp. 24-25, footnote 11.

But taxpayers using motor homes in their trade or business should beware: this issue will arise again.

DELAY OF THE GAME – PART DEUX

In Uncategorized on 08/19/2013 at 17:26

But Judge Morrison Is On the Case

The few readers who have struggled through the summer doldrums might vaguely remember my blogpost “Delay of the Game”, 7/12/13, and its not-quite-sequel “Yonder Come Day”, 7/30/13, wherein I discussed the various delaying maneuvers of inventive taxpayers.

Judge Morrison, however, has no patience. He deals with one such in Clarence William & Susan M. Speer, Docket No. 581-12, filed 8/19/13.

C.W. and Sue are on for trial in LA next month, and Judge Morrison told them so back in April.

Less than two weeks ago, a little more than thirty days before trial, CW and Sue move for a continuance (that’s an adjournment in these parts), claiming they have plane tickets and can’t show for the trial.

Could be, but Judge Morrison is a follower of the Great Communicator: “Trust, but verify.”

Judge Morrison: “…(p)etitioners shall, on or before September 3, 2013, file a supplement to their motion for continuance. Petitioners’ supplement shall include an attachment with copies of petitioners’ airplane tickets referred to in petitioners’ motion, along with documents showing the airplane tickets were purchased prior to receiving the April 18, 2013 notice of trial.” Order, p. 1.

Should be an interesting supplement.

GO TO YOUR ROOM

In Uncategorized on 08/19/2013 at 17:07

No, not another essay on parenting, but Ch J. Michael Thornton’s announcement of the latest improvements to Tax Court paperwork and procedures, which was released today, August 19, on Tax Court’s website, are worthy of comment.

Here’s the whole story. What follows is a digest.

Counsels’ rooms in select locations, where practitioners and clients can meet to discuss their cases before showing up for calendar call, will be made available to Bar-sponsored calendar call programs and low-income tax clinics. Certainly a welcome accommodation  to the assisters of those unable to afford the highly-credentialed and even more highly-paid practitioners who take their ease therein.

Judge Thornton also announces a new line of stuffers. These are not the products of Mr. Frank Perdue’s massive operation, but rather enclosures to accompany various Tax Court mailings to the self-represented, informing them in simple terms of some of the numerous twists and turns in the Tax Court path.

There’s also a kinder, gentler application for waiver of the $60 filing fee, and new requirements for academic and non-academic clinics. But the volunteers should show up an hour before calendar call (that is, 8 a.m., as the new stuffer tells the petitioners to show up at 9 a.m.).

These improvements are the outcome of practitioner, volunteer and government input. It’s always a good thing when stakeholders collaborate to ease the process for all parties.

MID-AUGUST DOLDRUMS

In Uncategorized on 08/16/2013 at 20:16

It’s mid-August, and while it’s not a “blazing hot day in August”, and “a depleted bank account”, while depleted, still has enough so I can take a three-day holiday, nevertheless I sympathize with Dr. Watson, as he tells the story in “The Adventure of the Cardboard Box”: “But the morning paper was uninteresting. Parliament had risen. Everybody was out of town, and I yearned for the glades of the New Forest or the shingle of Southsea.”

Congress isn’t around, and my equivalent of the “morning paper”, the Tax Court website, is really uninteresting today.

Nothing new, so relax and enjoy.

GOT YOUR TICKET? – PART DEUX

In Uncategorized on 08/16/2013 at 04:00

 Riding the Dawn Patrol out of New York Penn Station to the Capital of the Confederacy, I remembered to blog an opinion from what is now yesterday, 8/15/13, Staffmore, LLC, 2013 T. C. Memo 187.

Again the mantra: the SNOD is the ticket to Tax Court.

Does any reader remember Karl E. Cross and his travails before His Honor Big Julie, a/k/a Judge Julian Jacobs (hereinafter HHBJJJJ)? No? Not surprised; the same are more particularly bounded and described in my blogpost “Got Your Ticket?”, 12/13/12.

Well, Staffmore’s problems are different to Karl E.’s, inasmuch as Karl E.’s SNOD, dodgy as it was, was still a SNOD. Staffmore never had one, so its attempt to appeal the employee reclassification of the pseudonymous SH, and stay IRS from making public the SS-8 letter so holding until its appeal is decided, fails.

By the way, Staffmore’s business is to provide personnel to providers of mental and behavioral health services. Good training for Tax Court and the Internal Revenue Code generally.

HHBJJJJ gets this one, and he kicks Staffmore to the curb.

Background, per HHBJJJJ: “…petitioner’s attorney… mailed a letter to respondent objecting to respondent’s employment status determination and stating: ‘We are requesting that this redacted determination letter be deleted and not published at all during the review and appeal period as we plan to petition the Tax Court on both issues. It is our understanding that the release of this letter is prohibited pending reconsideration and appeal of the SS-8 determination.’” 2013 T. C. Memo 187, at p. 5. (Name omitted).

Following the obligatory incantation that Tax Court’s jurisdiction is limited, and only by express Congressional grant can Tax Court live, move and have its being, HHBJJJJ goes straight to Section 7436(a): “…in connection with an audit of any person, there is an actual controversy involving a determination by the Secretary as part of an examination”, 2013 T. C. Memo. 187, at p. 7.

Staffmore’s counsel, hereinafter Johnny T., says that the SS-8 notification letter was a determination (maybe he read the whistleblower cases).

IRS says it wasn’t a Section 7436(a) determination, and in any case there’s no audit.

Johnny T.’s not done, though: “Finally, petitioner asserts that if respondent’s motion is granted because of what petitioner refers to as ‘hyper-technical arguments’, the Court would be wasting judicial resources because the employment status of SH would eventually be resolved by the Court after respondent issues petitioner a notice of deficiency.” 2013 T. C. Memo. 187, at p. 8.

While to the legal mind judicial economy is a prime desideratum, it doesn’t go in Tax Court. Absent examination (audit) and SNOD, Tax Court can’t go there.

“Petitioner’s submission of Form SS-8 is in essence a request that the IRS make a determination as to a worker’s employment classification for a taxable period or periods separate and apart from the IRS’ normal audit and examination procedures. See Rev. Proc. 2005-32, sec. 4.03(2), 2005-1 C.B. 1206, 1207. The submission of Form SS-8 is analogous to a taxpayer’s request for a private letter ruling.” 2013 T. C. Memo. 187, at p. 8, footnote 3.

Wait for the audit and the SNOD, then go to Tax Court.

Now Section 6110(f)(3) gives Tax Court jurisdiction to determine disputes about what should be published in the IRS Electronic Reading Room. But that doesn’t help Johnny T., because he wanted publication of the entire SS-8 suspended “pending appeal”, and Tax Court has no jurisdiction to hear said appeal, so Johnny T.’s request for what amounts to an injunction pendente lite, as the high-priced lawyers say, is moot, because there will be no lite. Not yet.

So HHBJJJJ doesn’t need to do the “we ain’t got no general equitable jurisdiction either” foxtrot.

I don’t want to be misunderstood here. A critic of my blog claims I make fun of litigants, lawyers and judges, and calls down Divine wrath upon my balding head (I won’t send the bears after him; see 2 Kings 2:23-25).

Maybe I have gotten a trifle acerbic at times, but not here. My sympathies are with Johnny T. He is another lawyer who spins out in the chicane that is Tax Court and its labyrinthine anfractuosities. It’s not his fault. Obviously he is used to courts of general jurisdiction, where judges deal with matters head-on, generally.

But that isn’t Tax Court. Hyper-technical distinctions are where it’s at. So, as to Staffmore and the pseudonymous SH, in the immortal words of the late great Charles Dillon Stengel, you could look it up.

DON’T PUT ALL YOUR EGGS IN ONE BASKET

In Uncategorized on 08/15/2013 at 15:25

Or both of your clients’ petitions in one envelope. CSTJ Panuthos unravels this one in a designated hitter, Desiree Broadnax, Docket No. 6179-13, filed 8/15/13.

Des’ petition gets tossed for late filing (no jurisdiction). Des’ counsel replies that the petition that IRS claims was late-filed was a duplicate of an earlier petition he sent, together with a petition for an unrelated client, both of which were timely. He put them both in the same USPS Express Mail envelope.

CSTJ Panuthos: “The record–which includes the Supplemental Response filed by petitioner on July 3, 2013, and the sworn Affidavit attached thereto–reveals that on March 4, 2013, a member of petitioner’s counsel’s staff went to the U.S. Post Office and mailed two petitions–one for petitioner and one for a different taxpayer–in the same envelope. Attached to petitioner’s Response was a receipt from the U.S. Postal Service dated March 4, 2013, showing that an envelope weighing 14.40 oz was sent to the Court on that date. The envelope bearing the same tracking number as that listed on the receipt was received by the Court on March 5, 2013, but the Court has record only of having received the other taxpayer’s petition. In addition, the petition that was received weighed approximately half of the weight indicated on the U.S. Postal Service receipt. Further, the Court’s own records show that accompanying the other petition was a check for $120: twice the Court’s $60 filing fee.” Order, p. 1.

Because of these “unusual circumstances”, Judge Panuthos treats Des’ petition as timely, and orders IRS to file and serve an answer.

A personal note: Years ago, doing bank servicing, we sent off two loan payoff checks and documents in the same envelope. The envelope was lost. A total disaster. Separate envelopes ever after.

Takeaway–Separate envelopes, separate checks.

 

AND ALL THAT JAZZ

In Uncategorized on 08/14/2013 at 17:34

No, not the 1975 Fred Ebb-John Kander song from “Chicago”, nor yet the 1979 Bob Fosse film, but rather the small-claimer from Thomas Allen Gullion, 2013 T. C. Sum. Op. 65, filed 8/14/13, with Judge Kerrigan on the bench and Tommy the Taxpayer on sax.

Tommy was a musician. “Petitioner began performing on the saxophone at the age of eight. He has played professionally since the age of 16. He attended Indiana University, where he studied under David Baker, a distinguished professor of music and jazz education. He also toured with J. J. Johnson, a master of bebop trombone.” 2013 T. C. Sum. Op. 65, at p. 3.

Tommy’s musical efforts yielded far less than his specialized design activities for the years at issue. In fact, over a seven-year span, he took in $13K from his Driftwood Jazz Festival in Southwestern Wisconsin and four CDs, but lost $130K.

IRS says “no” to two years’ worth of losses.

Now the Section 183 hobby-loss mambo is facts-and-circumstances, no single factor determinative and a mere head-count is necessary but not sufficient.

Tommy was regular and continuous: he blew that horn wherever and whenever. But did he want to, and try to, make a profit?

But instead of going through all the factors, Judge Kerrigan cuts to the chase. Tommy was certainly trained to be a musician and did play with J. J. Johnson, of J. J. and Kai fame, as those of us who staggered into our high school classes sleep-deprived from listening to Symphony Sid remember fondly.

“Petitioner was dedicated to his music career. He organized a jazz festival in Wisconsin and recorded four CDs, including ‘Carswell’ in 2009. Petitioner’s testimony was credible concerning the time he spent on his music career. We have recognized that a taxpayer may engage in more than one trade or business at any one time. It is also well settled that the term ‘trade or business’ includes the arts.”  2013 T. C. Sum. Op. 65, at p. 8. (Citations omitted).

I’m sure the shades of Da Vinci, Michelangelo, Rembrandt, El Greco, Velasquez and Van Gogh are pleased to be recognized as having practiced a “trade or business”, at least as far as Tax Court is concerned.

Moreover, “(P)etitioner testified that the music industry has undergone changes over the years and that it is now difficult to make a profit. He testified that many of the jazz clubs closed in Chicago and that there were not that many opportunities. He further testified that less money is made when a musician plays another artist’s music. Petitioner contends that he made changes so he can become profitable. Petitioner moved to Wisconsin in part because the cost of living was lower and because he could continue to travel to Chicago and elsewhere. For instance he will embark on a tour in Spain in summer 2013. He referred to his time in Wisconsin as rebuilding years and stated that he would like to be able to leave the software industry and pursue music full time. In addition petitioner wanted to change the course of his career, placing more emphasis on his own music and focusing on composing. He wants to leave behind a legacy of work.” 2013 T. C. Sum. Op. 65, at pp. 9-10.

It’s true Tommy lost a bundle, but Judge Kerrigan understands. “We have found that ‘a history of losses is less persuasive in the art field than it might be in other fields’, as economic success in the arts, frequently takes longer to achieve than success in other fields. We believe that the arts include music.” 2013 T. C. Sum. Op. 65, at p. 10. (Citations omitted).

I’m sure the shades of J. S. Bach, G. F. Handel, W. A. Mozart, L. van Beethoven, and J. Brahms are pleased that music is included among the arts, and is therefore a “trade or business”, according to Tax Court..

IRS says that a $600 profit in a year not at issue, based on Tommy’s CD “Catharsis”, doesn’t erase $130K of losses over a seven-year stretch.

But Tommy, echoing the more successful songwriter Robert Alan Zimmerman, says “the times they are a-changin’”. “The music industry changed, and petitioner’s focus moved from performance to original composition and other aspects of music. Petitioner contends that he made adjustments and retooled his career and that he was profitable in 2011. A result of this retooling was the CD ‘Catharsis’, which includes his original compositions.” 2013 T. C. Sum. Op. 65, at p. 10.

Judge Kerrigan says Tommy didn’t have a lot of income from other sources. But he did pretty well at his software designing, $103K in one of the years at issue, and $130K in the next. So maybe Judge Kerrigan thinks that a six-figure income is modest, after her years in a white-shoe Washington, D.C. law firm.

And though Tommy loved to blow his horn, that element of personal pleasure doesn’t negate a profit motive. You can have fun and make money.

Tommy gets nailed for some minor deductions, but he went to a fellow musician who is also a CPA and gave him all the records to do his taxes, so Judge Kerrigan knocks out all penalties.

Takeaway– If you represent artists, you can catch a break if the hits don’t just keep on comin’.