No, not the 1956 movie about the World War II impostor, but rather about the legal fictitious person, the “willing buyer” and his (or in the modern world, her) counterpart, the “willing seller”, each armed with all reasonably available knowledge concerning that which is to be sold and bought, and neither one of them under any compulsion to buy (or sell), and both looking to get the best deal they can.

Of course, the lawyers and judges recognize that these criteria apply to none of the parties to the case at hand, and are designed to represent the hypothetical ideal, nevertheless the appraisers and the triers of fact must follow the lead of these mythical beings, rather like those deceived by Ewen Montagu’s fictitious “Major William Martin, R.M.”

So we have yet another appraisal case (they seem to gravitate to Tax Court, just as the mythical Major Martin drifted ashore in Spain). Case in point: Estate Of Shirley C. Giovacchini, Deceased, Donor, Lisa Lekumberry, Executor and Trustee, 2013 T. C. Memo. 27, filed 1/24/13.

See my blogpost “Such Rarefied Heights of Pure Mathematics”, 6/25/11.

The reason I’m a day late (but not a dollar short) is that it took a while to digest 114 pages of Judge Wherry’s prose.

The late Shirley was a granddaughter of the pioneers who settled the Lake Tahoe region of Nevada. Before joining the aforesaid ancestors, Shirley sold, gifted, settled and bequeathed the last large plot, piece or parcel of land in the Lake Country, hedged round with scenic, environmental, and governmental restrictions, but still of immense value.

The varied environmental and governmental authorities offered telephone numbers to the late Shirley for her 2500 acres of Rocky Mountain High, and backed up the same with made-to-order appraisals, designed to pry the maximum cash from the public fisc to secure in perpetuity the magnificent land unspoiled by those whose money was being thus expended. The appraisers ignored their own rules, but they claimed it was in a good cause.

The late Shirley did a sale of some 1700 acres with the governmentals and not-for-profts, but kept some 500 or so acres, which she put in the usual trust and LLC mix-and-match for her descendants, at the behest of the family’s trusted CPA, Randal S.  (“Kuckie”) Kuckenmeister (great name!), who prepares the Form 709 and the Form 706.

Shirley joins the ancestral pioneers, and then begins the fun. IRS assesses gift and estate tax deficiencies based on the made-to-order appraisals.

Enter the next class of appraisers. IRS agrees that the burden of proof is on IRS, a rare occurrence, and trots out its own appraiser.

As value for gift tax and estate tax purposes is the same–“fair market value”. “As a general concept, fair market value is well defined. It is “the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts”. 2013 T. C. Memo. 27, at p. 32 (Citations omitted).

Valuation is ultimately a question of fact. So Judge Wherry weighs and measures the dueling appraisers. If you’re into the theory and practice of real estate appraisal (with a detour, explaining how the Federal government can effectively confiscate private property by making access thereto virtually impossible), read it.

Finally, Judge Wherry, in a quasi-Solomonic moment, cuts the appraisals in pieces, and constructs a valuation greater than Executor and Trustee Lisa’s crew would wish, but less than IRS wanted. Judge Wherry does deny the Section 6662 panoply (including, but without in any way limiting the generality of the foregoing, as the high-priced lawyers say)  the 40% substantial undervaluation, because Executor and Trustee Lisa reasonably relied on her appraisers and Kuckie.

Long live the non-existent “willing buyer and willing seller”.

But Maybe Not

See my blogpost “Too Swift Arrives as Tardy as Too Late”, filed 5/9/11.

Putting a new twist on the old saying, Special Trial Judge Lew Carluzzo, the Man With the Great Given Name, has a good Designated Order on a day when Tax Court has nothing else to offer, 1/23/13. This is Kedar Roberts, Docket No. 24505-12SL, filed 1/23/13.

It’s a motion to dismiss the petition as untimely filed–but filed too soon, not too late. IRS issued a NOD saying it was appropriate to file a NFTL on Kedar. Kedar mailed his petition 9/29, but the NOD was dated and mailed 10/3. Apparently Kedar was either psychic, or Appeals told him he was out of luck. Anyway, Tax Court got Kedar’s petition 10/3.

Generally, says STJ Lew, IRS is right. There must be a NOD before there can be a petition, but here there was a tie. IRS relies on the “mailed-is-filed” rule in Section 7502 and moves to dismiss. Kedar replies, but his reply doesn’t raise anything but frivolity, so STJ Lew shows Kedar the Section 6673 yellow card.

“As relevant here, section 7502 is applicable if a petition is delivered to the Court after the period prescribed in section 6330(d) expires. If that occurs, then, for jurisdictional purposes and under conditions set forth in the statute, the date that the petition was mailed is treated as the date the petition is filed. That is not the situation here; the petition was not delivered after the period prescribed by section 6330(d) expired. Consequently, section 7502 does not apply. The date that the petition was mailed is not taken into account; the date that the petition was received by the Court and filed controls.” Order, at p. 2.

The NOD was mailed 10/3, and the petition was not received or filed before that date or after the expiry of the statutory limit for filing a petition.

Thus Kedar’s petition, neither too soon nor too late, is timely filed.

It is at least 45 years since I heard Sergeant Longry’s nasal, gravelly snarl resound through Tent City at Fort Jackson, South Carolina: “Sick call! Get out here, you sick, lame and lazy!” Only a near-death condition would suffice for ol’ Sarge.

But IRS Appeals should heed ol’ Sarge’s words. See my blogpost “Sick Sick Sick”, 9/26/12, the sad tale of A. DeeWayne Jones and his remand to Appeals from Judge Marvel.

Now Judge Wherry deals with the issue, this time featuring LaMar D. Pomeroy, briefed and argued with Dixie L. Pomeroy in 2013 T. C. Memo. 26, filed 1/22/13.

LaMar isn’t very sympathetic. He’s a habitual non-filer and frivolity merchant who has run up a substantial tax, additions and frivolity penalty liability. Judge Wherry: “Petitioners, LaMar and Dixie Pomeroy, are husband and wife, and both are retired. They have a long history of noncompliance with Federal income tax responsibilities, with unpaid income tax liabilities for the years 1997 through 2009. In addition, Mr. Pomeroy has unpaid liabilities for civil penalties for frivolous submissions assessed under section 6702(a) for the tax years 1999, 2000, 2003, and 2005. Mrs. Pomeroy has unpaid liabilities for civil penalties for frivolous submissions assessed for tax years 1994, 1999, 2000, 2003, and 2005.  For tax years 1997 through 2003 and 2006, petitioners did not file income tax returns, and respondent [IRS] prepared substitutes for returns under section 6020(b).” 2013 T. C. Memo. 26, at p. 3.

But he is a sick fellow, and Appeals didn’t give Dixie a fair chance to get a doctor’s note attesting to LaMar’s deteriorated physical state. Dixie did get a doctor’s letter, but produced it after the administrative record had closed, and Ninth Circuit learning bars introduction of such evidence after the administrative record has closed.

LaMar tried offers-in-compromise, but COIC determined he and Dixie could pay in full before the SOL on assessments ran out, and that’s fine, even though LaMar argued that 48 months was the limit, and COIC had to consider his physical ailments.

“The crux of petitioners’ argument appears to be that Mr. Pomeroy’s medical condition qualified them for offers-in-compromise based on effective tax administration even though they submitted the offers under doubt as to collectibility grounds. Indeed, IRM pt. 5.8.11.4(3) (Sept. 23, 2008) states that, for offers submitted as doubt as to collectibility offers, the settlement officer should also consider the offer as an effective tax administration offer if special circumstances exist even if the collection potential exceeds the liability. Petitioners point to numerous instances in the record to show that Appeals was well aware of Mr. Pomeroy’s stroke and should have considered the offers as effective tax administration offers once it determined that petitioners could fully pay the liabilities.” 2013 T. C. Memo. 26, at p. 17.

“Petitioners alerted respondent numerous times that Mr. Pomeroy was gravely ill. The administrative record reflects that Appeals was not only aware that Mr. Pomeroy had suffered a stroke, which could very well have a drastic effect on petitioners’ medical expenses, but it was also aware that Mrs. Pomeroy was in the process of trying to get a letter from a physician. SO gave petitioners only 10 business days, between the November 29, 2010, date of the letter and the December 13, 2010, deadline, to obtain a prognosis or diagnosis from a doctor.” 2013 T. C. Memo. 26, at pp. 18-19 (Name and footnotes omitted).

But one omitted footnote is worth quoting: “As Mrs. Pomeroy testified at trial: “’[W]hen you have a family member that is almost on their death bed, it gets kind of hard to do everything[.]’” 2013 T. C. Memo. 26, at p. 18, footnote 8.

Judge Wherry decides he can’t evaluate the record based upon what appears therein. So he sends the case back to Appeals, where presumably Dixie can put in the rejected doctor’s letter, and whatever other pictures, descriptions and accounts she can muster to document LaMar’s lamentable condition.

Even a hardened sinner like LaMar can get due process in Tax Court, if he’s on sick call.

Doug Shulman’s legacy, as brought to fruition by Dave Williams at the Return Preparers Office of IRS, namely the regulation of hitherto-unregulated tax return preparers via the Circular 230 RTRP (Registered Tax Return Preparers, pronounced “retreps”) provisions, has been torpedoed by Judge Boasberg in Loving vs. IRS, Civil Action 12-385, filed 1/18/13, in US District Court for the District of Columbia.

Sabina Loving and two other paid return preparers claim that IRS has no statutory authority to require them to take a test, pay an annual fee, and take 15 hours of CPE each year.

Judge Boasberg agrees. The 1884 statute (31 USC §330), which gives the Secretary of the Treasury authority to regulate representatives of claimants appearing before the Department, doesn’t give IRS authority to regulate those who merely prepare returns. Of course, if they show up at examination of a return they prepared, that’s another story.

The test is Chevron, of course; see my blogpost “Carpenter, Colony, Chevron and Mayo”, 4/26/11. When questioning the validity of a regulation, first see if Congress has spoken unambiguously; if so, game over, and the statute rules, says Chevron. Only if Congress either hasn’t spoken, or has spoken ambiguously, does a Court test whether the regulation is arbitrary, capricious or manifestly contrary to the statute, says Mayo.

Judge Boasberg says that §330 is clear: you have to do more than fill out a self-assessment, which is all that a tax return is, to represent someone before the IRS. And Congress could well desire to have those who deal with examination and appeals demonstrate greater expertise and character than one who fills out a return.

Moreover, Congress has enacted a number of specific preparer penalties, all of which would be overturned if IRS could use its penalty powers under Circular 230 to regulate preparers, as well as deprive them of certain procedural due process.

While IRS may have valid policy considerations, the statute remains, and only Congress can allow the procedures IRS desires. Likewise, prior inconsistencies in IRS’ position on preparers would only be relevant if we go to the arbitrary or capricious analysis, but we need not go there, says Judge Boasberg.

You can be sure we’ll be hearing more about this. I know the professional associations will be following this case as it proceeds.

That’s The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Mark V. Holmes. There being no decisions out of Tax Court today, 1/18/13, I pulled a couple of orders from yesterday’s bushelbasket.

First up is Vernon Walter Menifee, III, Docket No. 8628-11, filed 1/17/13. Judge Holmes sets the scene: “This case is on the Court’s May 20, 2013 trial calendar for Buffalo, New York. It arises from seven years of deficiencies that the IRS determined Mr. Menifee owed after he apparently failed to file any returns.” Order, p. 1.

Simple enough, right? Just check out any SFRs, bank record reconstructions, third-party notices, receipts, logs, vouchers, and Vern’s quality and manner of life during the years at issue. But that won’t do, because Vern has another problem besides his tax problem.

“Mr. Menifee is cooperating with his counsel as best he can from federal prison, but the large amounts and numerous issues led both parties to agree that it made sense to wait until his release to try to settle the case or get it ready for trial.

“The Court will put this on a very long-term status report track and contact the parties — after Mr. Menifee is released — to set a date for the first one.” Order, p. 1.

Sounds like Vern has plenty of time to think about how to defend this case. And remember our friend Robert L. Willson, Sr., the star of 2011 T.C. Sum. Op. 132, filed 11/23/11. Judge Holmes noted in that case that the IRS let Willie serve out his time before going after him. See my blogpost “Basis for Dummies”, 11/24/11.

So don’t expect a decision soon.

Next up are Vasant S. & Panna V. Kale, Docket No. 11323-11, filed 1/17/13. Vas and Pan didn’t show when their case was called at the LA trial part. IRS moved to throw out the case for failure to prosecute, but Judge Holmes held off. “Petitioners did have counsel, and the Court wanted to ensure that it is petitioners and not just their counsel, who defaulted. We ordered them to show cause why we shouldn’t dismiss their case for lack of prosecution, and ordered them (and not just their lawyer) to be served.” Order, p. 1.

Remember my blogpost “How Not To Do It”, 11/21/12, where an attorney I pseudonymously called Feckless Freddie got the right-about-face from Judge Holmes?

Same story. Comes the return date of the OSC, and neither Vas nor Pan shows up or shows cause, and their counsel is similarly AWOL.

So Judge Holmes tosses their case, and nails Vas and Pan for better than $200K in deficiencies and penalties for the two years at issue.

But you can’t say Judge Holmes doesn’t try.

I missed this one, and it shouldn’t go unblogged, especially as it received some interest in specialist circles. I’m referring to Huda T. Scheidelman and Ethan W. Perry, 2013 T. C. Memo. 18, filed 1/16/13, another façade easement deduction case.

You’ll remember Huda from my blogpost “Method to His Madness”, 6/18/12, where I reported on Second Circuit’s finding that, although IRS might not like Huda’s expert’s appraisal, it was an appraisal, and facially comported with IRS’ regulatory provisions. So Second Circuit sent Huda and the IRS back to Tax Court, so that Tax Court might assess the credibility of the appraisal and its evidentiary worth.

Judge Cohen sets out the parameters of the remand: “The case was remanded for a determination of the fair market value of the easement if we do not accept respondent’s other statutory and regulatory arguments, which relied on section 170(h)(5)(A) (a contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity) and section 1.170A-14(g), Income Tax Regs. (requirements which must be met for the perpetuity requirement to be satisfied). See Kaufman v. Commissioner, 136 T.C. 294 (2011), aff’d in part, vacated in part and remanded in part, 687 F.3d 21 (1st Cir. 2012). Respondent no longer contends that the conservation deed and the annexed lender agreement failed the requirements of section 1.170A-14(g)(6), Income Tax Regs., that the contribution be protected in perpetuity.” 2013 T.C. Memo. 18, at p. 2.

So a thing of beauty need not necessarily be a joy forever, Mr. Keats. But it has to be worth something, at least in the negative sense that restricting the owner thereof from tampering therewith decreases the worth of the owner’s property whereon the thing of beauty rests.

And it isn’t worth anything, finds Judge Cohen. But even so, Judge Cohen will not revisit Tax Court’s earlier holding to let Huda and Ethan off the penalty hook. Likewise no new trial, as the parties agree to let the previous trial record stand and not add to it.

Once again, Tax Court disputes not the qualifications of Huda’s appraiser, Michael “Iron Mike” Drazner, but his conclusions. “There is no material dispute between the parties with respect to the value of petitioner’s property before the easement. Respondent’s criticism of the Drazner report, with which we agree, focuses on Drazner’s purported determination of the value of petitioner’s property after the easement was granted. Drazner determined the value of the easement by applying an 11.33% discount to the value of the property. His derivation of that percentage was not based on reliable market data or specific attributes of petitioner’s property, but rather on his analysis of what the courts and the IRS had allowed in prior cases.” 2013 T. C. Memo. 18, at p. 14.

This is an echo of the “Primoli memo”, the 10%-15% diminution that was a throwaway in an IRS training memo, long since superseded. See my blogpost abovecited. Or put another way, this appraisal was based on what would get by, not what was true.

But on the trial Huda didn’t call “Iron Mike”, although she referred to his report in her brief. She went with Michael Ehrmann, also qualified but a protegé of NAT, sponsor-seller of easement deductions. His testimony was even more flawed than Iron Mike’s appraisal. “He relied on outdated information rather than contemporaneous inspection, used alleged comparables from outside the geographical area of petitioner’s property, and applied an unsupported and unrealistic adjustment to petitioner’s Brooklyn townhouse as compared to a detached house in Evanston, Illinois. His methodology is undermined by these errors.” 2013 T. C. Memo. 18, at pp. 15-16.

Having compared apples to stale Fig Newtons, Mr Ehrmann’s credibility was gone.

Of course, IRS’ experts show that the property was rendered more valuable by being historic, and that New York City’s Landmarks Preservation Commission serves as fierce watchdog of historic strictures.

Finally, IRS had the local neighborhood preservationist guru testify that NYCLPC was good people, and that preservationism made the neighborhood what it was (desirable–and pricey).

So Iron Mike and Mr Ehrmann are discarded, along with Huda’s deduction.

Especially When They’d Rather Not

It’s an old jibe that lawyers are miserable businesspeople. Lawyers are too busy dealing with everyone else’s problems to take care of their own. And bookkeeping is such a tedious business, when dealing with clients, adversaries and fine theoretical points of law is so much more fun.

But tedium and busyness won’t help when a lawyer, especially a tax lawyer, fails to report heavy-duty amounts of income and even gets nailed criminally once, when other years get examined for the same sort of thing.

So The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Mark V. Holmes, keeps the SOL open and lays a fraud penalty on Owen G. Fiore, in 2013 T. C. Memo. 21, filed 1/17/13.

Incidentally, this is a bad day for lawyers, as Humphrey, Farrington & McClain, P.C., of Independence, MO, get their unreimbursed expenses recharacterized as loans, per Sections 446 and 481, in 2013 T. C. Memo. 23, filed 1/17/13. Those who like accountancy can read this one for themselves. But at least Humphrey & Co. avoid most of the Section 6662(a) penalty by virtue of their good faith.

Owen G. isn’t so lucky.

Owen G. was a lawyer with an auditing background. Taxation was his specialty, and he was a leader in the field out West, making it rain; finding, wining and dining clients; and delighting his white-shoe partners with a bountiful harvest at the annual bloodbath–I mean compensation meeting.

Finally, Owen G. strikes out on his own, but is a technophobe who keeps insouciant records, doesn’t open bank statements and leaves everything to “his Gal Friday”, who is as technophobic as he is.

IRS finally catches up to Owen G., but the revenue agent is a new hire who gets bogged down on unsubstantiated deductions, not unreported income, and Owen G. gives her a finely-choreographed ballet, using the Macbeth gambit: “Tomorrow and tomorrow and tomorrow”: rescheduling meetings, avoiding, postponing, promising paper and not delivering.

Now IRS calls in one of their gunners, who shows up unannounced, looks around, reads Owen G. his rights, reconstructs income, and Owen G. pleads to one count for one year, reserving his rights for the others. So Judge Holmes has to go through the merit badges of fraud, to see if Owen G. is an eagle scout or a vulture.

Floating over this case is Owen G.’s history: he is a tax attorney with an auditing background. But his sloppy recordkeeping might be attributed to his client-searching and the fact that he went from big firms with lavish accounting support to single-shinglehood (I did that, and let me tell you, after forty years of life in firms large and small, it don’t come easy). So Judge Holmes isn’t clearly convinced, and “clear and convincing” is the standard of proof for fraud.

Now Owen G. failed to play nice with IRS, shucking and dodging. Judge Holmes: “Fiore was a master of delay during the audits and the criminal investigation, repeatedly rescheduling meetings and giving up documents only grudgingly or not at all. He offered implausible explanations about nontaxable deposits and transfers into his general account. Still, he was constantly traveling to develop business, to set up his Idaho retirement, and to advise his clients. He shouldn’t have canceled so many meetings with the IRS, but–though it edges the Commissioner closer to proof of fraud here–it’s not quite clear and convincing given Fiore’s consistency in poor recordkeeping.” 2013 T. C. Memo. 21, at p. 18.

And Owen G. was smart enough not to agree he evaded for any year but the year for which he pled guilty, so IRS can’t argue pattern-of-fraud clearly or convincingly. That the first IRS revenue agent didn’t check out unreported income doesn’t help IRS.

But now comes the meat of Judge Holmes’ analysis, and again, The Great Dissenter goes where few have gone before. “So far, then, it’s not clear whether Fiore had fraudulent intent. But underlying all the factors discussed above is another important question–was Fiore willfully blind to the unreported income?

“Willful blindness is a relatively underdeveloped area of law in Tax Court jurisprudence–at least in fraud cases. In Fields v. Commissioner, T.C. Memo. 1996-425, 1996 WL 530108, at *14, we mentioned willful blindness. Fields received advice from his attorney that he should report commission income and ignored the advice. Id. We reasoned that Fields’s “lack of regard for [his attorney’s] advice was for the primary purpose of evading taxes.” Id. We added that, although not necessary to the conclusion,

‘fraudulent intent can be found by reasonable inference drawn from proof that a taxpayer deliberately closed his or her eyes to what would otherwise have been obvious to him or her * * * a trier of fact may infer that an individual knew of his or her evasion of tax from his or her willful blindness to the existence of that fact.’” 2013 T. C. Memo. 21, at p. 31.

So Judge Holmes goes into willful blindness as proof of culpability in the criminal context at length, and finds that Owen G. knew he needed lots of cash, told a prospective lender he made lots of money, yet didn’t open bank statements, and didn’t keep good records.

“We cannot accept that a person of Fiore’s intelligence, training, and experience was not aware when he filed his returns for 1996 and 1997–at a time when he knew his need for cash was ballooning–that there was a high probability that he was underreporting his income. And we find that he deliberately avoided steps that would have confirmed that underreporting, since all he had to do was read his monthly bank statements to verify the accuracy of his estimates of taxable income that he put on his returns.” 2012 T. C. Memo. 21, at p. 31.

So Owen G. gets hammered for two more years of fraud. What an unhappy end to a career. Read and heed, tax lawyers.

No, it’s not Peter Buck’s and Michael Stipe’s 1991 R. E. M. hit, it’s the lament of Lucy Gabey, in her eponymous Tax Court case, 2013 T. C. Memo. 17, filed 1/16/13.

I find popular songs do define the essence of litigation, especially tax litigation, but that’s a story (or a blogpost) for another day.

Meanwhile, Lucy is a tribal elder of the Navajo nation, and she claims Section 152(c)(2) deprives her of her religion and equal protection of the laws. Lucy is supporting her nephew, a minor. Her nephew is neither her child nor her descendant; he is not “a brother, sister, stepbrother, or stepsister of petitioner or a descendant of any such relative”. 2013 T. C. Memo. 17, at pp. 2-3.

But he is a clan relative, and the Navajo have clan relationships that mandate such support. Unfeeling IRS, carrying out the mandate of an unfeeling Congress, strips Lucy of her dependency exemption deduction, head of household filing status, earned income credit, and child tax credit, but later concedes the nephew’s qualifying relative qualification, giving Lucy back her dependency exemption deduction.

“According to petitioner, in Navajo culture and tradition children are not only children of the parents; they are also children of the clan. Petitioner submits that a Navajo clan consists of the first clans of the child’s mother, father, maternal grandfather, and paternal grandfather and that the clan relationship may extend beyond the foregoing if, for example, the child is adopted.” 2013 T. C. Memo. 17, at p. 5.

It’s unusual to see Constitutional arguments in Tax Court outside of protester cases, where they get blown away, but here Judge Cohen has to deal with the Constitution and the Religious Freedom Restoration Act of 1993 (known to the cognoscenti as RFRA). RFRA was intended to restore compelling governmental interest and least intrusive method to tests for infringement on free practice, and to give litigants a claim or defense if burdened by governmental action inhibiting their religious convictions.

I’ll skip the law review stuff; it’s obvious that I wasn’t on Law Review, having neither the brains nor the patience for writing seven-page footnotes. I am an ardent fan of the Supreme Court Justice (was it O. W. Holmes?) who brushed aside a citation to the Harvard Law Review thus: “I don’t pay attention to schoolboy magazines.”

But the upshot is that RFRA only applies if a person is deprived of a benefit because of, or compelled by threat of civil or criminal penalty to act contrary to, their religious exercises.

“The section 152(c)(2) relationship classification does not condition petitioner’s receipt of tax benefits on her forgoing her clan obligations to TD or force her to choose between following her clan obligations to TD and receiving tax benefits. Furthermore, the section 152(c)(2) relationship classification does not deny petitioner tax benefits because she fulfills her obligations to TD or force her to abandon her clan obligations to TD by threat of civil or economic sanctions. Regardless of petitioner’s ineligibility for tax benefits such as the earned income credit, she is at liberty to fulfill her clan obligations to TD. Petitioner’s argument for the burden on her religious rights is, instead, financial hardship and continuing Navajo child poverty. However, the Supreme Court has rejected the notion that a taxpayer’s free exercise of her religious beliefs is somehow not fully realized unless it is subsidized by tax benefits such as the earned income credit.” 2013 T. C. Memo. 17, at pp. 17-18 (Citation omitted).

No burden, so IRS need not show “least invasive method”.

Lucy’s arguments about Navajo child poverty and the Treaty of 1868 don’t fare any better. “Neither financial need nor poverty, standing alone, identifies a suspect class for purposes of equal protection analysis. There is no proof or even an indication that Congress selected or reaffirmed the section 152(c)(2) relationship classification because of or in spite of any adverse effects on petitioner or the Navajo or that the section 152(c)(2) relationship classification is a hostile and oppressive discrimination against her and the Navajo. For the foregoing reasons, the section 152(c)(2) relationship classification neither involves petitioner’s fundamental right to the free exercise of her religion nor proceeds along suspect lines.” 2013 T. C. Memo. 17, at p. 11. (Citations omitted).

“A strong presumption of constitutionality is granted to legislation conferring monetary benefits, because Congress should have discretion in deciding how to expend necessarily limited resources.” 2013 T. C. Memo. 17, at p. 12 (Citation omitted).

Finally,  IRS argues that Section 152(c) is quick-and-easy, and Judge Cohen agrees. Any bright-line test will leave somebody out who should be in, but unless there’s an invidious purpose behind it, the test must stand.

While I was mediating a real estate litigation on January 14, President Obama appointed Ronald L. Buch to the Tax Court Bench, for a term to end in 2028. The President never even bothered to leave me a message, much less ask my opinion; I feel slighted.

But I bear Judge Buch no ill-will. In fact, I wish him well.

Judge Buch followed the usual cursus honorum to reach his present exalted position, from a tax concentration in law school to the obligatory LL.M. in taxation, admission to the Bars of several States, to a Big Four accounting firm to Chief Counsel’s Office, back to a couple of white shoes with partner status, with a bushel-basketful of Bar Association committee chairs thrown in. A nice resume.

So hail to Judge Buch. I await many learned decisions.

 Or, The Hidden-Ball Trick

Once more, Joe Alfred Izen, Esq., and Karen Cooley are trying for Section 7430 administrative and litigation expenses; see my blogpost “The $2000 Misunderstanding”, 6/12/12. This time Judge Kroupa encounters the dynamic duo in Karen Cooley, 2013 T. C. Memo.15, filed 1/15/13.

Readers of my earlier blogpost will remember that Joey A. and Karen are married, but signed a post-nup that said each would keep separate all income and expenses. As they live in a community property state (Texas), absent such an agreement each spouse’s property is shared with the other.

Joey A. and Karen record their post-nup, Karen files married separate, doesn’t include half of Joey A.’s income, and when IRS increases Karen’s income by that amount, Karen, represented by Joey A. of course, asserts the post-nup (styled a “partition agreement”) and tells IRS to search the public records for same. IRS gives Karen a SNOD instead.

Joey A. files a petition with Tax Court, asserting the partition agreement without providing a copy to IRS.

“Respondent [IRS] requested additional time to answer the petition to obtain the partition agreement from petitioner. On the very same day petitioner’s counsel sent the partition agreement to respondent by facsimile. Respondent conceded the deficiency determination in his answer.

“Petitioner thereafter filed a motion for litigation costs and expenses. Petitioner’s purported costs were primarily incurred during the administrative proceeding. Accordingly, we interpret it as a motion for administrative costs as well as litigation costs. Respondent opposes the motion.” 2013 T. C. Memo. 15, at p. 3.

“Petitioner argues that respondent’s administrative position was unreasonable because respondent did not follow the ‘lead’ petitioner provided to search public records for the partition agreement. Respondent counters that his administrative position was reasonable because petitioner did not rebut the community property presumption by providing the agreement. We agree with respondent.” 2013 T. C. Memo. 15, at p. 6.

In a community property state, a spouse filing separately is deemed to have received one-half of the other spouse’s income. While IRS has been found to be justified when it searches the public record, it is not deemed unjustified when it fails to do so.

And Karen is an old hand at the hidden-ball trick, concealing evidence until after the proceeding is commenced. Judge Kroupa cites 2012 T. C. Memo. 164,  the subject of my abovecited blogpost, wherein Judge Holmes, The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being,  berates Karen and Joey A. for their trickery in an earlier case for not playing show-and-tell up front.

So IRS is substantially justified both at the administrative and litigation checkpoints. And to quote my earlier blogpost again “So no payday for Joey A. But Joey A is quite a card. And he and Karen are quite a team.”