No, Renee, and no Pilgrim’s Pride, not if you want an ordinary loss. And that notwithstanding The Left Banke’s 1966 hit.

Judge Dawson, who rarely features on my blogposts, stars in a mouthful, Pilgrim’s Pride Corporation Successor In Interest To Pilgrim’s Pride Corporation Of Georgia f.k.a. Gold Kist, Inc. Successor In Interest To Gold Kist Inc. and Subsidiaries, 141 T. C. 17, filed 12/11/13.

Simple facts. Way back down the corporate tree, Gold Kist, Inc., the stem from which the Pilgrims grew, was a Georgia cooperative; Gold Kist was obligated to buy some stock from another cooperative, Southern States, due to a busted asset purchase and IPO. Gold Kist did, and paid $98 million plus.

The stock was supposed to be entitled to dividends, and for about five years Southern States paid them; then Southern States told Gold Kist that all bets were off as to dividends, but Southern States offered to pay Gold Kist to get back the stock for which Gold Kist had paid the $98 million plus, at a price much less than $98 million. Of course, the stock was non-callable, so Gold Kist had no obligation to tender the stock or reply to Southern States.

Nevertheless, after certain haggling, Southern States offered $20 million, and Gold Kist, rather than take a $70 million plus capital loss, decided that a $98 million plus ordinary loss was much better. Whereupon and in consequence thereof, as the expensive lawyers say, Gold Kist relinquished, abandoned and surrendered the stock and the certificates evidencing its ownership thereof, and told the transfer agent to expunge the fair name of Gold Kist forever from the records of Southern States.

Gold Kist had the stock on its books at $38 million plus when they walked, and that’s the loss they showed on their books.

Their 990-C, however, showed a $98 million ordinary loss, transferable to the Pilgrims when the Pilgrims bought Gold Kist and went public.

IRS was not amused. But the Pilgrims had filed chapter, so IRS was barred from proceeding on the deficiency it had bestowed on Gold Kist and its successor, the Pilgrims, until the Pilgrims got their reorganization plan approved.

The key here is whether the “abandonment” of the stock was a sale or exchange of the stock for tax purposes. If so, it’s a capital loss. And “sale or exchange” is a narrower concept than “sale or other disposition”.

If not a sale or exchange of the stock, and not required by statute to be treated as such, the loss is ordinary.

Judge Dawson decides that Section 1234A controls. It says that gain or loss from cancellation, lapse, expiration or termination of property that is a capital asset in taxpayer’s hands is a capital gain or loss. The Pilgrims argue the statute applies only to rights in property, not the property itself. Judge Dawson prefers the plain meaning of the words of Section 1234A: “We hold that the plain meaning of the phrase ‘a right or obligation * * * with respect to property’ encompasses the property rights inherent in intangible property as well as ancillary or derivative contractual rights.” 141 T. C. 17, at p. 20.

The legislative history also thwarts the Pilgrims. Section 1234A was enacted to prevent straddles, a game whereby offsetting interests produced ordinary, rather than capital, losses, because the transactions weren’t “sales or exchanges” under then-existing laws.

So after much more parsing of statute and regulations, with the twice-repeated proposition that IRS need not assert a position the instant a legislative change permits them to do so, Pilgrims get a capital, not an ordinary, loss.

And IRS graciously concedes the accuracy penalties.

IRS has increased the user fees for installment agreements and OICs.

Effective 1/1/14, an installment agreement will cost $120 (up from $105) and $50 (up from $45) to reinstate or restructure an existing agreement. The fees for a direct debit agreement ($52) and for low-income taxpayers ($43) won’t change. An OIC will set you back $185 (up from $150). Still, low-income taxpayers and taxpayers making an offer based solely (and that means solely) on doubt as to liability get a free ride.

And it just so happens IRS is running a collection alternatives webinar today, 12/11/13. Get all the scoop by registering at http://www.visualwebcaster.com/event.asp?id=96566

You faithful, indefatigable readers of my blog, seekers for enlightenment in the murk of the IRC, the gloom of the regulations and the stirred-up silt of Tax Court opinions (thanks, Judge Holmes, for that last metaphor), rejoice greatly!

I have an answer to the unanswered question. See my blogposts “Angst”, 11/4/13, and “We May Never Know”, 11/26/13, for the backstory.

For those impatient to get to the answer, this involved the immigration status of Lee Ang, Docket No. 13309-12L. IRS claimed, at pp. 41-42 of its motion for summary judgment enforcing the tax lien, that Lee is illegally in the Land of the Free.

Judge Laro says, so what? And sends all hands off the brief the question.

So I contacted a source, whose identity I can’t and won’t disclose (now that our NY Court of Appeals has reaffirmed our State’s  Shield Law in Holmes v. Winter, 12/10/13).

According to my source,  Judge Laro was concerned that,  if Lee is a fugitive, a jeopardy assessment and immediate collection might be in order. The stay imposed on IRS collection activities while a Tax Court case is pending (Section 6213(a)) cannot keep IRS from grabbing Lee’s assets before he flees to  partibus incognita, if a substantial flight risk exists. See Section 6851(a).

But if Lee isn’t a present fugitive or a likely coop-flyer, due process requires that he have a chance to contest the lien, before IRS grabs his property.

My informant tells me IRS isn’t pushing the immigration status issue. A clerk in Courtroom 206 at 26 Fed Plz tells me that the case is still on for trial on 12/12/13 at 10 a.m.

You read it here first.

No, not the beloved radio program of my childhood, starring Big Jon (the late Jon Arthur) and Sparky (or Sparkie), “the little elf from the land of make-believe, who wants more than anything else in the world to be a real boy.” Oh, to be nine years old again, on a Saturday morning, in the old days….

Enough nostalgia. Tax Court is closed, as Our Nation’s Capital is snowed in.

Here’s the story:

“Operating Status:

“Due to inclement weather, the Tax Court offices in Washington, DC, will be closed on Tuesday, December 10, 2013.

“Snow & Dismissal Procedures – Washington, DC, Area:

“Applies to: December 10, 2013

“Status: Federal Offices are Closed – Emergency and Telework-ready Employees Must Follow Their Agency’s Policies.

“FEDERAL OFFICES in the Washington, DC, area are CLOSED. Emergency and telework-ready employees required to work must follow their agency’s policies, including written telework agreements.”

Sorry, STJ Armen, The Judge With a Heart, it didn’t look close to me.

At the end of a banner day in Tax Court (five, count ‘em, five posts today, a new personal best), as with the card at Aqueduct, we end with a small claimer as the dusk settles in.

This one is Gary W. Andersen and Linda C. Andersen, 2013 T. C. Sum. Op. 100, filed 12/9/13. And the whole story is about $1223 accuracy penalty.

Try this as a sad story. Gary and Linda have a 50 year unbroken record of timely filings, with not a single exam (or even a math correction). But their returns are complicated; they have some farmland they’ve rented, and they each have pension income and employment income from various employers.

So they go to their trusty CPA, with every scrap of paper that could have anything to do with income and deductions, just as they’ve been doing for the five years preceding the year at issue.

And he isn’t just your ordinary CPA (sorry, all you CPAs out there who read my blog, I know you’re all extraordinary because you do read my blog). No, this is Curtis Trader, CPA, MA in Accountancy from Brigham Young U., 20-year veteran of tax preparation and chair, as at the time of trial,  of the Utah Tax Review Committee, to which exalted post he was appointed by the Governor.

Now Curt knew Linda was thinking of hanging up her scrubs (she was a RN), so when she didn’t hand him a W-2 for the year at issue, but a 1099-R for her showed up in the shopping bag he gets from the Andersens, he reckons Linda has finally done it.

Except she hasn’t. Her employer has gone digital, so Linda gets the digit, but not the paper. And her employer doesn’t tell her to check the website, pick a password and download her W-2. So she has no idea she had a W-2.

And when they check out the return Curt prepared, it comes within $1K of the previous year’s numbers (or 0.67%), so nobody is the wiser.

Except IRS, which got the digit that Linda didn’t get, and which fires off a SNOD. That same day they get the SNOD, Gary and Linda send a check for the entire amount of underpayment as stated by IRS.

Now IRS wants the five-and-ten, substantial underpayment. Technically correct, but on these facts?

STJ Armen: “Admittedly, this is an exceptionally close case. However, after weighing all the evidence, and in particular the testimony of the witnesses, we think the balance shifts in petitioners’ favor.” 2013 T. C. Sum. Op. 100, at p. 9.

“Exceptionally close”? Give me a break, Judge!

You state that Gary and Linda are credible witnesses, that Curt is a top-of-the-line expert, that the mistake was honest, that Gary and Linda obviously made a good faith effort to assess their tax liability as they had done every year for the preceding fifty (count ‘em, fifty) years, and that they corrected it the minute they got the SNOD.

How about ol’ Raul Salvagno and his next friend, young Alex Salvagno, the haunter of law libraries, who fiddle around for six years before Judge Kerrigan finally loses patience? See my blogpost “With Friends Like Him”, 2/26/13. And what price  all the other wiseguys and sharpshooters, many of whom have shown up on my blogposts, of whom the accounts of their delictions litter the files at 400 Second Street, NW?

So I’m glad that, at the end, STJ Armen shows he’s still A Judge With A Heart: “Clearly, petitioners made a mistake. But we think it was an honest mistake and not of a type that should justify the imposition of the accuracy-related penalty. In short, we think that petitioners’ diligent efforts to keep track of their tax information, hiring a C.P.A. to prepare their tax return, reviewing their return with the C.P.A. when it was completed, and prompt payment of the deficiency upon receipt of the notice of deficiency, together with the other facts and circumstances discussed above, represent a good-faith attempt to assess their proper tax liability.” 2013 T. C. Sum. Op. 100, at p. 12.

That’s the holiday spirit, Judge.

And no good deed goes unpunished, as Oscar Wilde put it. Lourdes Puente learns this from Judge Haines in her eponymous Tax Court case, 2013 T. C. Memo. 277, filed 12/9/13.

The story is sad but simple. Lourdes’ brother Benny buys a house. He’s the only one on the deed and on the mortgage. Lourdes moves in; at some point down the road Benny loses his job and Lourdes, good sister that she is, steps in and pays some $28K in mortgage interest to keep the roof over her head and Benny’s investment from going south.

Lourdes claims the interest deduction. Benny gets the 1098. Lourdes gets the SNOD. IRS gets the win.

Lourdes doesn’t have legal title, so half the Section 163 toehold for the principal residence deduction is gone (everyone agrees it’s Lourdes’ principal residence).

Now for beneficial ownership: “The Court considers certain factors to determine whether a taxpayer has assumed the benefits and burdens of ownership, including: (1) whether the taxpayer had the right to possess the property and to enjoy the use, rents, and profits thereof; (2) whether the taxpayer had the duty to maintain the property; (3) whether the taxpayer was responsible for insuring the property; (4) whether the taxpayer bore the risk of loss of the property; (5) whether the taxpayer was obligated to pay taxes, assessments, and charges against the property; (6) whether the taxpayer had the right to improve the property; and (7) whether the taxpayer had the right to obtain legal title at any time by paying the balance of the purchase price.” 2103 T. C. Memo. 277, at pp. 5-6.

Lourdes has none of the above. There’s no agreement between her and Benny that lets Lourdes do anything, get anything, risk anything or pay anything.

No deduction. Probably, though, there’s a gift tax implication. But see my blogpost “Economic Substance – A Taxpayer Win”, 12/31/10, for a case where the gift tax didn’t apply.

Unless You Want to Foot(e) The Legal Bill Yourself

 Bill and Liz Foote really got the boot from IRS, and wound up settling eight years’ of claimed underpayments (which IRS claimed at one point was over $120 million) for $310K plus $64K in additions.

But they never asked for admins and litigations, the Section 7430 paybacks, until it was too late.

Read the sad story in William D. Foote and Elizabeth R. Foote, 2013 T. C. Memo. 276, filed 12/9/13, as told by Judge Wherry, not in the least whimsical today.

Although Bill and Liz sent letters to IRS claiming 7430s, they never timely sought to include the admins and litigations in the settlement stip, or moved to vacate the decision so as to litigate the admins and litigations.

Though the case never went to trial, there was certainly trial prep. In fact, Bill and Liz ran up $734K in claimed admins and litigations.

No dice, says Judge Wherry. The doctrine of res judicata controls, and he gives IRS summary judgment tossing Bill and Liz. Once the stipulated decision is entered, and you didn’t stip with IRS about the admins and litigations, you either move to vacate it and fight about the 7430 allowance of admins and litigations, or lose the claim forever.

And it doesn’t matter that IRS was, to put it charitably, a wee bit aggressive here. “Petitioners attach to their opposition to summary judgment exhibits rife with allegations of improper behavior on the part of the revenue agent. As illustration, petitioners contend that the revenue agent refused to consider proffered and documented explanations and that she made numerous adjustments without any credible factual basis or justification.” 2013 T. C. Memo. 276, at p. 4, footnote 4.

And while he says he isn’t finding facts here, Judge Wherry did note earlier that: … the facts, as alleged by petitioners, do not cast respondent [IRS] in a positive light. These facts, if true, are indicators of intemperate actions by respondent’s revenue agent and group manager. However, these facts do not help petitioners because, as discussed infra, the law dictates summary judgment for respondent.” 2013 T. C. Memo. 276, at p. 2, footnote 2.

Read the Tax Court Rules. “They specify that if the parties agree on a settlement of all issues including administrative and litigation costs, the parties must include in the stipulated decision documents the award of those costs. Rule 231(a); Manchester Grp. v. Commissioner, T.C. Memo. 1994-604, 1994 WL 692750, at *7, rev’d on other grounds, 113 F.3d 1087 (9th Cir. 1997). If the parties have not settled the reasonable administrative and litigation cost issues, the taxpayer must file a motion for costs within 30 days of service of a written opinion determining the issues in the case or service of the pages of the transcript that contain findings of fact or opinion stated orally pursuant to Rule 152. Rule 231(a)(2)(A) and (B). If the parties have settled all issues but the claim for costs, the taxpayer must also file a motion along with the stipulation of settled issues. Rule 231(b) and (c).” 2013 T. C. Memo. 276, at p. 9 (Footnote omitted, but read it; it gives some illustrations of other occasions to ask for 7430 relief).

Even though Bill and Liz have some good equitable arguments, it doesn’t help. Judge Wherry goes with res judicata; once it’s over, it’s over. Move timely or lose.

Finally, a word to the wise advocate: “As alleged by petitioners, the actions of the revenue agent, abetted by the group manager, may have been inappropriate, and we in no way condone inappropriate or un-called-for actions. However, those actions, while significantly contributing to petitioners’ lengthy audit and substantial legal bills, are not the proximate cause of petitioners’ inability to obtain an award of reasonable administrative and litigation costs. Rather, it was the unfamiliarity of petitioners and their advisers with our Rules or their inadvertent failure to follow them.” 2013 T. C. Memo. 276, at pp. 15-16. (Emphasis added).

Read the Rules, guys. If you’re going to practice in Tax Court, or before the IRS, read the Rules.

Seems that delay of the game is in the air today, 12/9/13, as Judge Lauber deals with a claim by the Viacom King Sumner M. Redstone that IRS is prevented by the equitable doctrine of laches (delay) from nailing the aforesaid Redstone for gift taxes on gifts he made in 1972, about which he never told IRS and never bothered filing returns.

Too bad, Sumner, laches doesn’t fly. See Sumner Redstone, Docket 8097-13, filed 12/9/13.

Judge Lauber gives Sumner the unwelcome news: “It is well settled that the United States is not subject to the defense of laches in enforcing its rights. The inapplicability of the laches doctrine is especially clear where (as here) the Government seeks to enforce tax claims that are governed by an express statute of limitations. In such cases, the ‘timeliness of Government claims is governed by the statute of limitations enacted by Congress.’ Fein v. United States, 22 F.3d 631, 634 (5th Cir. 1994). Accord, Kohler v. Commissioner, T.C. Memo. 2008-127, 95 T.C.M. (CCH) 1494, 1496-97; Wright v. Commissioner, 89 T.C.M. at 666.” Order, at p. 2 (Some citations omitted).

When a Judge begins with “it is well-settled”, start packing your briefcase, counselor, it’s game over and walk home.

Although there some dicta lying around that maybe, just maybe, laches might apply against the US of A in an off-the-wall circumstance, Judge Lauber isn’t going there.

“In the instant case, the Government seeks to enforce a public right, in the form of a federal tax claim, that is governed by an express statute of limitations enacted by Congress. Petitioner has cited no case, and we have discovered none, in which a court has applied laches against the United States in a situation such as this.” Order, at pp. 2-3.

Anyhow, if he could wriggle in some argument for laches to apply, Sumner “would need to demonstrate, for example, that the IRS was aware of the 1972 gifts and sat on its rights; that petitioner has suffered ‘undue prejudice’ because of this delay; and that petitioner ‘comes into equity with clean hands.’  See, Fridovich v. Commissioner, T.C. Memo. 2001-32, 81 T.C.M. (CCH) 1143, 1146. Because there are material factual disputes concerning each of these points, disposing of the laches issue via motion for judgment on the pleadings would be wholly inappropriate in any event.” Order, at p. 3 (Footnotes omitted).

But one of the omitted footnotes is worth a passing glance. Sumner raised a Fifth Amendment due process issue, but he’ll get a chance to litigate his claims in Court, so no due process problem.

No, not a two-minute bench minor, but rather the start of the action at 400 Second Street, NW, in Our Nation’s Capital.

Here’s a clip from the Tax Court website:

“Operating Status: Washington, DC, Area
“Applies to: December 9, 2013
“Status: Open – 2 hours Delayed Arrival – With Option for Unscheduled Leave or Unscheduled Telework

“Federal agencies in the Washington, DC, area are OPEN under 2 hours DELAYED ARRIVAL and employees have the OPTION FOR UNSCHEDULED LEAVE OR UNSCHEDULED TELEWORK. Employees should plan to arrive for work no more than 2 hours later than they would be expected to arrive.”

But I was at 26 Federal Plaza, Room 206, in the Big Apple today, and things were right on time, as Judge Laro was driving the litigants through the calendar call. No slowdown here.

No, not Robert Frost’s classic poem “Stopping By Woods”, but rather IRS letting us know what the standard mileage rates will be for calendar 2014.

Briefly, beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56 cents per mile for business miles driven
• 23.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

Remember the Section 274 standard for substantiation of those business miles. And if you’re keeping a logbook for business, you might as well log in the medical, moving and charitables as well.