Archive for November, 2013|Monthly archive page


In Uncategorized on 11/18/2013 at 19:11

And Maybe Woodshedding Your Client

I’ve often discoursed about the need to woodshed your experts: sweat them, find the sweet spot in your case that they must prove, and learn as much of their specialities as you can in the limited time you have.

But what happens when your expert refuses the jump?

That’s the problem in Estate of Diane Tanenblatt, Deceased, Roy L. Greenbaum, Personal Representative, 2013 T. C. Memo. 263, filed 11/18/13. And Judge Halpern isn’t sympathetic.

The Late Diane was (or maybe not) a member of a NY LLC that owned a fully-rented commercial building in the Ladies’ Mile section of Manhattan. But Diane’s stake was a distinct minority, and she couldn’t sell without all the other members’ consents. So Roy values her piece at $1.78 million on the 706, but gets audited and is unhappy with the result.

IRS’ expert comes in enough higher to give the estate a $309K deficiency. The issue of course is the discount for minority and for lack of transferability.

Roy petitions and attaches to his petition a new appraisal (called Tindall), to which he wants IRS to stipulate. IRS only agrees that something is attached to the petition, but they can’t say whether Roy obtained it, or anything else about it.

“Petitioner’s path for attempting to introduce the Tindall appraisal into evidence as expert testimony is, to say the least, unusual. Generally, a party obtains the testimony of an expert witness by calling that witness to testify. See Rule 143(g)(1). Pursuant to that Rule, the expert witness must prepare a written report, which is marked as an exhibit and, after having been identified by the witness and adopted by him, received into evidence as his direct testimony unless the Court determines that the witness is not qualified as an expert. The Rule further provides that, not less than 30 days before the call of the trial calendar on which a case appears, a party calling an expert witness shall serve on each other party and submit to the Court a copy of the expert’s report. Finally, the Rule also provides that, generally, we will exclude an expert witness’ testimony altogether for failure to comply with the Rule. Those requirements are echoed in our standing pretrial order, which was served on petitioner.” 2013 T.C. Memo. 263, at pp. 10-11.

Sounds rather like Sir Paul McCartney’s 1969 hit “She Came In Through the Bathroom Window”, rather than through the front door.

So why not follow the Rule?

Well, counsel had a good reason, responding to IRS’ motion to preclude Tindall: “Petitioner had filed no response to respondent’s motion in limine, and, at the hearing, in response to the Court’s question as to whether petitioner was just relying on his own motions (with respect to stipulating the Tindall appraisal into evidence), petitioner’s counsel candidly responded: ‘Probably. Your honor, because right now my client’s in a fee dispute with the appraiser, so right now I cannot get the appraiser to come in and testify.’ Apparently, counsel’s time is less dear than was Dr. Tindall’s.” 2013 T. C. Memo. 263, at p. 11.

Time to woodshed the client? With $309K on the table, might be well to consider whether Tindall might not be worth the extra.

Because Judge Halpern is the gatekeeper, charged with letting in evidence per the rules, both the Tax Court rules and the FRE.

“Petitioner did not call Dr. Tindall as a witness but asks us to rely on her report (which, under our Rules, would serve as her direct testimony) as her expert opinion. Petitioner has neither qualified Dr. Tindall as an expert entitled pursuant to rule 702 of the Federal Rules of Evidence to give her opinion on technical matters nor has he satisfied our procedural rules for expert testimony, found in Rule 143(g) and in our standing pretrial order. In other words, petitioner has failed to satisfy the preconditions for our receiving Dr. Tindall’s opinion into evidence. Because her report (i.e., the Tindall appraisal) is not in evidence, we may not consider her opinion.” 2013 T. C. Memo. 263, at p. 19-20.

There’s a lot more about IRS’ expert’s appraisal, but the game is over when Tindall refuses the jump.


In Uncategorized on 11/18/2013 at 18:03

Those of my readers (those few, those happy few, that band of brothers and sisters, to paraphrase the Bard of Avon) who slogged their way through my blogpost “The Rebate Debate”,  9/19/13, and even the more turgid prose of Judge Ruwe in Glenn Lee Snow, 141 T. C. 6, filed 9/19/13, and still have an appetite for decoding what is an “underpayment” for the 20% Section 6662(a) chop, are invited to join Judge Buch in the uncoupling of “deficiency” from “underpayment”, as wrought by the 1989 Omnibus Budget Reconciliation Act. The uncoupling and recoupling takes place in Yitzchok D. Rand and Shulamis Klugman, 141 T. C. 12, filed 11/18/13.

Here goes: “Although they are linked by history, the fact remains that in 1989 Congress uncoupled these terms. And although identical words are presumed to have the same meaning, the presumption ‘is not rigid’. United States v. Cleveland Indians Baseball Co., 532 U.S. 200, 213 (2001) (quoting Atl. Cleaners & Dyers, 286 U.S. at 433). But here, Congress expressly indicated that uncoupling these terms was not intended to remove their definitional nexus. Despite detaching the definition of an underpayment from the definition of a deficiency, Congress informed us that ‘the bill provides a standard definition of underpayment for all of the accuracy-related penalties. This standard definition is intended to simplify and coordinate the definitions in present law; it is not intended to be substantively different from present law.’ HR. Rept. No. 101-247, at 1394 (1989), 1989 U.S.C.C.A.N. 1906, 2864. But see H.R. Conf. Rept. No. 101-386, at 654 (1989), 1989 U.S.C.C.A.N. 3018, 3257. Given that sections 6211(a)(1)(A) and 6664(a)(1)(A) use the same phrase and that the two provisions are contextually and historically related, we turn to section 6211(a)(1)(A) to assist us in interpreting the provision before us.” 141 T. C.12,  at p. 18.

Yitz and Shul claimed three refundables they admit they weren’t entitled to, leaving a $7K deficiency. IRS claims the underpayment was the refund Yitz and Shul got they weren’t entitled to; Yitz and Shul claim that the underpayment was the $144 of tax they would have owed if they hadn’t claimed the recovery rebate, the additional child, and the earned income credits. But the Cardozo Tax Clinic, amicus curiae, says the number is zero, because an underpayment can’t be less than zero.

Time for statutory interpretation. The Section 6664 regulations don’t speak to the credits Yitz and Shul took, they speak about withholding.

So Judge Buch engages in some fancy footwork: “Because the Secretary has not promulgated a regulation addressing how the refundable credits at issue here should be taken into account, we need not address whether the statute leaves room for agency interpretation. It follows that we are also not resolving the question of whether the Secretary may promulgate a regulation that is inconsistent with this Opinion. And the mere fact that we devote these pages to interpreting the statute does not, by implication, mean that the statute is ambiguous. Whether a statute is ambiguous is determined not only from the language of the statute being considered, but also from the ‘language and design of the statute as a whole.’ See, e.g., K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988). Thus, in looking beyond the language of section 6664(a)(1)(A) as part of our analysis, we are not answering the question of whether the statute is ambiguous. We are simply interpreting the statute. And to do so, we turn to principles of statutory construction.” 141 T. C. 12, at p. 15 (Footnote omitted).

And while the refundables contribute to the deficiency, they don’t contribute to the underpayment, at least to take the underpayment below zero. And as for IRS’s argument that Judge Buch is letting Yitz and Shul off the hook, the rule of lenity, an ancient canon, says that penalties are strictly construed in favor of the penalized. And if IRS wanted to nail Yitz and Shul, they should have used Section 6676 excessive refund claim 20% chop to whack Yitz and Shul.

The Cardozo boys win one.


In Uncategorized on 11/15/2013 at 19:34

Deputy Assistant Secretary for International Tax Affairs Robert B. Stack has announced that France signed aboard with FATCA with a Model 1 IGA on November 14. Thus, France joins Denmark, Germany, Ireland, Mexico, Norway, Spain and the UK in the Model 1 bracket, with Japan and Switzerland in the Model 2 category.

That’s nice, but where are the Caymans, the Bahamas, Liechtenstein, the Netherlands and Cyprus?



In Uncategorized on 11/15/2013 at 17:09

Ch J Thornton is echoing Neil Diamond’s 1972 hit in Beata Kulish, Docket No. 13240-13S, filed 11/15/13.

It’s a run-of-the-papermill order. Beata filed a paper Amendment to Petition, but the eagle eyes at 400 Second Street, NW, noticed that the paper did not bear Beata’s original autograph. There are dozens of such orders coming out of Tax Court every day, telling the non-signers to sign on the dotted line.

But Ch J Thornton is unusually specific: “An Amendment to Petition, bearing an original signature (preferably in blue ink), must be submitted to the Court in paper form.” Order, at p. 1. (Emphasis added).

We all know that Rule 26(b)(1) prohibits e-filing of certain documents, as listed on the Tax Court website e-filing instructions link. And on page 25 of the e-filing instructions, Amendments to Petitions get a bold-faced “No”.

So it has to be paper; and make sure when the petitioner signs, they use blue ink.


In Uncategorized on 11/14/2013 at 18:52

And at that point, even so obliging a jurist as Judge David Gustafson (see my blogpost “We’ll Come to You”, 9/18/12) loses patience and delivers an off-the-bench designated hitter to Henry J. Lazniarz & Gina M. Lazniarz, Docket No. 31002-09, filed 11/14/13.

Henry J. is a real estatenik with a somewhat lackadaisical system of accounting for his business expenses. Henry J. had a trial last year, represented by his real estate development attorney (Lawyer No. 1), who put in minimal evidence. Henry J. saw that the trial did not go well, so he went to the bullpen.

Judge Gustafson: “New counsel for petitioner entered the case after the trial, filed petitioners’ post-trial brief, and moved for a new trial, arguing that ‘little evidence was adduced at trial. …the Court granted that motion on the grounds that petitioners’ prior counsel had not represented them adequately.” Transcript of opinion, at p. 4.

Judge Gustafson tells the parties “…the trial record would be made anew at the second trial, and that the parties should be careful to offer into evidence at the second trial all the evidence on which they intended to rely, whether or not it had been offered or received into evidence at the first trial.” Transcript of opinion, at pp. 5-6.

Judge Gustafson lets in whatever was stipulated in Trial No. 1, based on Rule 91(c), and asks what else Henry J.’s new lawyer wants. He puts in one carbon copy of a check and a summary of evidence (per FRE 1006), and tries to get in a billing summary prepared for Trial No. 2 by Lawyer No. 1, who doesn’t testify, so the billing summary gets tossed as hearsay.

Henry J.’s accountant does testify, but all he says is that he assumed everything he was told was authentic and he tried to allocate whatever was deductible.

You can read Judge Gustafson’s discussion of Henry J.’s testimony; I need not paraphrase.

Finally, the Obliging Judge admonishes Henry J. and Lawyer No. 2: “Thus, for most of the disputed deductions, no detailed testimony was given to corroborate the substantiating documents or to connect them to the business activity. When both parties had rested at the conclusion of trial, the Court pointed out to petitioner that he had not testified on most of the deductions, and petitioners’ counsel answered that petitioners had given the evidence that could be presented in the time available. Since it was late in the day, the Court asked whether petitioners wished to resume trial the next day and put on additional evidence, but they declined. Thus, although the petitioners were given a second trial, and although they were warned at that second trial that their proof might be lacking, they failed to put on evidence sufficient to carry their burden of proof.” Transcript of opinion, at p. 11.

Rule 155 beancount to follow. With the five-and-ten penalty.

There’s a limit even to the most obliging judge.


In Uncategorized on 11/14/2013 at 18:21

The 1913 Zo Elliott and Stoddard King classic is the story of  William C. Thompson, 2013 T. C. Memo. 260, filed 11/14/13, and STJ Daniel A. (“Yuda”) Guy trudges down every step of said long, long trail.

Willie C. didn’t bother filing returns for three years in the 90s; promptly, IRS gave him some SFRs, and then a SNOD around the turn of the millennium.  Willie C. never bothered to petition the SNOD, so IRS assessed and sent Willie C. a 3172 NFTL, filing the lien notice in Texas.

Four years later, IRS sent Willie C. another 3172, and filed liens in Oregon.

Willie C. never asked for a CDP for any of this.

However, “The Texas NFTL and the Oregon NFTL stated in pertinent part: ‘With respect to each assessment below [a reference to the assessments listed by the Court in the table above], unless notice of lien is refiled by the date in column (e) [May 17, 2010], this notice shall constitute the certificate of release of lien as defined in IRC 6325(a).’” 2013 T. C. Memo. 260, at p. 3 (Footnote omitted).

Three years later IRS made another assessment, this time of additions to the taxes previously assessed, and Willie C. finally files a petition two years after that. IRS moves to dismiss, claiming they never sent Willie C. a NOD as to their proposed levy. Willie C. goes to Ninth Circuit, where IRS finds they did in fact issue a NOD, but Willie C. is too late, and Ninth Circuit affirms on alternative grounds. But SOL is tolled while all this is going on.

Meanwhile back at the Texas and Oregon depots, IRS’ filed liens have lapsed, as IRS failed to renew within the thirty days after year ten; see Sec. 6323(g)(3)(A). So IRS invokes Section 6325(f)(2), the “oops!” clause, by filing “…Form 12474(A), Revocation of Certificate of Release of Federal Tax Lien, which stated in pertinent part: ‘I certify that we mistakenly allowed a Notice of Federal Tax Lien filed against * * * [petitioner] to operate as a Certificate of Release. I declare that the automatic release of the Notice of Federal Tax Lien is revoked and that the lien is reinstated as provided under Internal Revenue Code Section 6325(f)(2).’” 2013 T. C. Memo. 260, at pp. 5-6.

Apparently IRS filed these all around Oregon, but missed Texas.

So IRS sends off a fresh NFTL to Oregon’s Secretary of State, but Willie C. demands a CDP even before IRS sends him the CDP Notice.

But what can Willie C. bring up at the CDP? Appeals claims nothing, as he’s about seven years too late. And anyway the Appeals letter isn’t a NOD, so he can’t petition it.

Well, STJ Yuda says the Appeals letter is a NOD, but Willie C. can only have a CDP as to the second assessment. The Appeals letter is not a NOD as to the original NFTLs, because Willie’s chance to appeal and petition is long since gone.

But it is a NOD as to the additions to tax and the NFTLs filed in that respect.

STJ Yuda sums it all up: “To recapitulate, we hold that the Court lacks jurisdiction insofar as the petition seeks to challenge the tax, additions to tax, and interest that respondent assessed in April 2000. To that end, we will dismiss for lack of jurisdiction and strike so much of the petition as refers to those items. On the other hand, the Court has jurisdiction in this case insofar as the petition seeks review of the assessments entered against petitioner in October 2008. To provide for the orderly review and disposition of that matter, we will remand the case to the Appeals Office to conduct an administrative hearing and to issue a supplemental notice of determination.” 2013 T. C. Memo. 260, at p. 17.

The long, long trail goes on a-windin’.


In Uncategorized on 11/13/2013 at 18:35

And Chief Judge Thornton will treat your petition as filed.

Using the famous line from Cuba Gooding, Jr.’s, Academy-award-winning performance in the 1996 classic “Jerry Maguire”,  Chief Judge Thornton bails out Johnny Lawler, Docket No. 16712-13, filed 11/13/13.

IRS mailed Johnny’s SNOD April 10; Johnny’s last day to petition, therefore, is July 9. But Johnny’s imperfect petition doesn’t arrive at 400 Second Street, NW, until July 24, in an envelope postmarked July 17. Johnny subsequently amends September 23.

Johnny’s out on his proverbial, right? Ninety days means ninety days, only Congress can change it, and it doesn’t matter what hardship caused the delay. Even one day over ninety means game over.

No, Johnny used EasyMoney, and that saves the day.

Ch J Thornton: “Upon further review of the Court’s records, it appears that (1) on July 9, 2013, the Court received from petitioner EasyMoney money order #5401698 in the amount of $60, and (2) the Clerk of the Court returned the said money order to petitioner because it was not clear to which docket number the filing fee should have been applied. Because on July 9, 2013, the last day for timely filing a petition, the Court received from petitioner the filing fee for commencing a case in this Court, the Court shall file petitioner’s petition nunc pro tunc as of July 9, 2013.” Order, at p. 1.

If all else fails, show me the money.



In Uncategorized on 11/12/2013 at 17:10

That’s what George Gorra and Leila Gorra, canny New York real estate operator and tax attorney, respectively, did, and part of their façade easement deduction survives the Section 170 gauntlet administered by Judge Kerrigan, in 2013 T. C. Memo. 254, filed 11/12/13. But they get the 40% gross overvaluation chop for the rest.

It’s our old chum the National Architectural Trust, n/k/a the Trust for Architectural Easements, at it again. Having learned from their past delictions, which I’ve blogged in extenso so often that I need hardly repeat them here, the Trust throws a blanket easement on the Gorras’ high-priced, historically-certified townhouse, covering not just the façade, but the roof, open spaces and rear thereof.

This gets around New York City’s fabled Landmarks Preservation Commission, which by law can’t touch open space or rear. The Trust also inspects annually and confirms inspections in writing.

And when the Gorras ask to lift the easement so they can sell, the Trust says no; and the Trust has the power to say no, and the Trust need not be reasonable in saying no.

Now the Gorras had an appraisal from Eric Haims, a qualified appraiser. But IRS’ expert, high-priced broker Cushman & Wakefield’s Richard Marchitelli, says the easement is worth zero.

“Respondent [IRS] contends that petitioners’ easement has no value. Respondent compares it to the easements in Dunlap v. Commissioner, T.C. Memo. 2012-126, and Scheidelman v. Commissioner, T.C. Memo. 2013-18. As discussed above, in Dunlap the taxpayers donated a facade easement regarding a property in New York, New York, to the NAT that restricted the ability to alter, construct or remodel the facade without the NAT’s express written consent. The donation took place in 2003. We concluded that the value of the facade easement was zero because the it did not result in increased restrictions on that property above those required and enforced by the LPC on the date of the donation. In Scheidelman we held that the taxpayers’ facade easement was valued at zero because, among other things, the property was already restricted by the LPC.

“The facade easement was donated in 2004. Respondent argues that petitioners’ easement also mirrors the existing restrictions already in local law.” 2013 T. C. Memo. 254, at pp. 55-56.

Judge Kerrigan isn’t buying a zero diminution: “Ordinarily, any encumbrance on real property, however slight, would tend to have some negative effect on the property’s fair market value. Evans v. Commissioner, T.C. Memo. 2010-207, slip op. at 15. We do not find respondent’s expert report credible insofar as it maintained that an easement would have absolutely no effect on the fair market value of a valuable piece of real estate. Simmons v. Commissioner, slip op. at 26. In White House Hotel Ltd. P’ship v. Commissioner, 615 F.3d 321, 327 (5th Cir. 2010), vacating and remanding 131 T.C. 112 (2008), the Court of Appeals for the Fifth Circuit noted: ‘[R]ather extraordinarily, * * * [the Commissioner’s expert] assigned the easement a value of zero’. 2013 T. C. Memo. 254, at p. 57.

As I said, I’ve blogged most, if not all, of these cases.

And of course the Gorras’ easement covered more than the LPC, and the Trust did inspect.

So after the usual mix-and-match between experts, Judge Kerrigan decides the magic number is a 2% diminution of value, or about $104K. But since the Gorras claimed $605K, and since they took the charitable deduction in two different years (apparently having exhausted what they could take in year one), they get the Section 6662(h) 40% chop for both years.

Judge Kerrigan: “A penalty pursuant to section 6662(h) applies to any portion of an underpayment for the year to which a deduction is carried that is attributable to a gross valuation misstatement for the year in which the carryover of the deduction arises. See sec. 1.6662-5(c), Income Tax Regs. Petitioners therefore are liable for this penalty for both tax years 2006 and 2007.” 2013 T. C. Memo. 254, at p. 62.

And the Gorras’ Eighth Amendment excessive fines and penalties arguments get nowhere, as Judge Kerrigan cites a bushelbasketful of cases saying it’s all remedial, intended to spur taxpayers to do the right thing.

But at least covering your rear gets you something.


In Uncategorized on 11/12/2013 at 15:23

Thanksgiving came early for The Great Dissenter, Judge Mark V. Holmes, as Eighth Circuit, in the concurring opinion of Chief Judge Riley, exalts Judge Holmes’ great dissent in Randall J. & Karen G. Thompson, 137 T. C. 17, filed 12/27/11. See my blogpost “The Great Dissenter”, 12/28/11.

Chief Judge Riley, concurring: “I find myself in fundamental agreement with both of my colleagues in this complex case. As emphasized by Judge Wollman (and comprehensively explained in Judge Holmes’ dissenting Tax Court opinion), the partnership-level determination that Randall Thompson’s outside basis was overstated still requires partner-level computation and legal analysis to determine Thompson’s correct tax liability.” Randall J. Thompson; Karen G. Thompson v. Commissioner of Internal Revenue, No 12-1725, decided 9/9/13.

So Judge Wherry’s 36-page expatiation anent FPAA and partnership-level adjustments goes down; See Randall J. & Karen G. Thompson, Docket No. 30586-98, filed 11//12/13.

He may not know the partitive genitive, but Judge Holmes sure knows tax law.


In Uncategorized on 11/11/2013 at 18:47

photoTo my fellow veterans: Thanks for your service. To our brothers and sisters on active duty: Thoughts and prayers with you every day.