I didn’t read the petition in Dennis W. Gilbert. Docket No. 24455-13, filed 3/13/14*, as petitions aren’t available on-line, so I can’t say if STJ Daniel A. (“Yuda”) Guy was right when he quoted IRS’ answer to Dennis’ petition.

But IRS was colorful, whether or not accurate, and that earns them a mention on taishofflaw.com.

Judge Yuda: “Petitioner filed a timely petition for redetermination. The petition is limited to a series of questions related to the definitions of various statutory terms. Petitioner does not dispute that he received the items of income determined in the notice of deficiency.

“As indicated, respondent filed a motion to dismiss asserting that petitioner ‘makes no factual claims of error in the petition but argues only “’legalistic gibberish.'” We agree. Rule 34(b)(4) requires that a petition filed in this Court contain clear and concise assignments of each and every error that the taxpayer alleges to have been committed by the Commissioner in the determination of the deficiency and the additions to tax in dispute. Rule 34(b)(5) further requires that the petition contain clear and concise lettered statements of the facts upon which the assignments of error are based. The petition in this case does not satisfy the requirements of Rule 34(b)(4) and (5). There is neither assignment of error nor allegation of fact in support of any justiciable claim. Rather, the petition contains nothing but meaningless questions.” Order, at pp. 1-2.

That’s pretty tough language from Judge Yuda, though when it comes to legalistic gibberish I’d be careful about throwing stones. Even if Judge Yuda is waving the Section 6673 chopper at Dennis, I’ve encountered legalistic gibberish from more august sources than Dennis.

*Dennis W Gilbert 24455-13 3 13 14

Even if it doesn’t help you, the manual might have been amended after you started your case. That’s the story of Michael M. Kan, Docket No. 23678-12S L, filed 3/12/14.

But unlike The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter, Judge Mark V. Holmes, Judge Whelan isn’t a fan of remands.

Mike claims he slipped below the low-income barrier between the time he submitted his OIC and personal 433-B, and the time Appeals confirmed IRS’ decision to deny. Mike hadn’t paid the $150 fee (now $185: see my blogpost “The Price of Peace”, 12/11/13) or the 20% deposit with his 656.

The SO wasn’t buying, and neither was Appeals. Mike claims he should have gotten a reconsideration, based on changed facts between the time he sent in the forms and the time the SO bounced them.

No, says Judge Whelan. When Appeals bounced Mike’s OIC, the IRS Manual said that the SO need consider only matters as they stood at date of submission.

Eight months after the NOD bouncing Mike’s submission, the Manual was amended to provide that the SO should check applicant’s income at time of submission and at “current time”, and take the lower amount in deciding whether to dispense with the fee and deposit.

Too late for Mike.

“Neither party called this change in the applicable provisions of the Internal Revenue Manual to the Court’s attention. This change–taking place well after the Office of Appeals had issued the subject notice of determination–does not affect our conclusion that the SO did not abuse her discretion in rejecting petitioner’s offer in compromise and approving the proposed levy. Furthermore, we do not consider this change–taking place after petitioner’s case was presented to the Court-to be an appropriate basis for remand of the case to the Appeals Office. See, e.g., Kehoe v. Commissioner, T.C. Memo. 2013-63, at *5-6 (‘the Court has also remanded where the law changed between the CDP hearing and the Tax Court trial if that may have affected a taxpayer’s presentation of his case.’); Churchill v. Commissioner, T.C. Memo. 2011-182, *5 (“we’ve also remanded where the law changed between the CDP hearing and the Tax Court trial if that may have affected a taxpayer’s presentation of his case.’). Order, at p. 11, footnote 1.

By the way, Mike’s equity in his home was enough to pay the tax in full. Even though he claimed he needed the home office for his business, he never put in a 433-B for the business.

Still, I bet Judge Holmes would have remanded.

Yes, it’s a tax protester case, but the above demand is not made by the protester herself, but by IRS and Appeals, who realizes that they blew a NOD and need to correct it.

And to whom do they turn but the Man for Remand, The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter and foe of the partitive genitive, Mark V. Holmes?

See my blogpost “Back to the Future”, 8/1/11.

But this is the story of Judy Macdonald, 2014 T. C. Memo. 42, filed 3/11/14, completing my hat-trick of blogposts for today.

Judy is an old-time frivolity merchant. “Judy Macdonald has been filing frivolous tax returns or no returns at all since at least 1985. The Commissioner finally caught on and filed notices of federal tax lien (NFTLs) covering 18 years; he also assessed frivolous return penalties against her for 12 of them. Since then, Macdonald has only made more frivolous arguments. She demanded a collection due process (CDP) hearing and then failed to show up. She petitioned this Court, and then refused to engage in informal discovery, never signed a stipulation of facts, and didn’t appear at calendar call.” 2014 T. C. Memo. 42, at pp. 1-2.

This looks like a case for the remark Judge Holmes provided in the case of John Ryskamp, “Enough” See my blogpost thus entitled, 1/8/14. But not quite.

“What makes this case unusual is that the Appeals officer determined–at the CDP hearing that Macdonald skipped–several points in her favor. He then issued a notice of determination that concluded that tax assessments for six of the years were invalid. The Commissioner objected to this conclusion, and the Appeals officer then testified at an abbreviated trial. He said he was well and truly mistaken, and he even joined in the Commissioner’s request that he be found to have abused his discretion in ruling, even in part, in favor of the absent nontaxpayer.

“This was an odd request, oddly made, and we asked the parties to brief the question of what we should do.” 2014 T. C. Memo. 42, at p. 2.

So IRS put in a brief (Judy of course didn’t). “The Commissioner’s argument was simple: The Appeals officer had abused his discretion by applying the wrong rule of law when he mistakenly reasoned that he had to verify whether Macdonald had received the notices of deficiency sent to her for those tax years, and not simply whether the IRS had sent them to her last known address. See sec. 6212(b). He asks us to rely on the credible testimony at trial from the Appeals officer saying that he had made a mistake.” 2014 T. C. Memo. 42, at p. 6.

Apparently Judy sent IRS a letter with an address different to that which she used on the last (frivolous) return she filed. But that isn’t enough to give IRS notice, and a number of cases have so held.

“Simply putting a different return address on an envelope or letter mailed to the IRS is not enough. The Commissioner realizes this now, and asks that we decide that the supplemental notice of determination was invalid and that we uphold the NFTLs…. Unsure of exactly what to call this motion, he labeled it a motion to conform the pleadings with the proof.

“It is unclear if we can do anything about this ourselves.” 2014 T. C. Memo. 42, at p. 9.

Remember, Tax Court is a court of limited jurisdiction. Only the taxpayer can appeal a NOD. There’s also the question of standing.

“But the unusual position that the Commissioner finds himself in raises several intricate questions:

“What allows us to broaden the subject matter of our review from the portions of the determination that a petitioner challenges to portions that the Commissioner disagrees with?

“Does such a challenge by the Commissioner involve a jurisdictional problem of standing?–after all, the Code gives standing to appeal only to the taxpayer, not to “any aggrieved person” or similarly broader class.

“Would it matter that the Commissioner could not himself petition to challenge the determination?”

2014 T. C. Memo. 42, at pp. 10-11. (Footnotes omitted, but read footnote 3 at p. 11, where Judge Holmes talks about the government suing itself; Appeals is separate from IRS (it says), so can IRS petition to review Appeals?).

So what does Judge Holmes do? Well, he takes a leaf from one of his own opinions; see my blogpost “The Busted Stipulation”, 1/27/12. And punts.

“We think it best in such an uncertain situation to remand the case a second time: We’ve hinted in the past that we can remand if it would be ‘helpful’. Phrased another way, ‘we return a case to Appeals if we consider a rehearing “necessary or productive.”’

“And that is what we’ll do here.” 2014 T. C. Memo. 42, at pp. 11-12 (Citations and footnotes omitted).

But read footnote 4 at p. 12. If the remand results in a new NOD, only that NOD is up for review. The new NOD is a supplement to the old, not a new NOD. All previous NODs are gone, and Judge Holmes expects that principle will apply here.

IRS wants to give Judy a Section 6673 hit, but Judge Holmes says she’s a first-timer in Tax Court, and shows her the yellow card. Next time she should play nice.

I’m blogging Shiraz Noormohamed Lakhani, 142 T. C. 8, filed 3/11/14, because he’s a fellow horseplayer. And I’m giving him a Taishoff “good try”, even though Judge Halpern DQs him at the post.

Now Shiraz is a heavier bettor than I by orders of magnitude. So he wants NOLs for his losing years, and wants to take losses above his winnings.

He claims Section 165(d), the “no losses above winnings” provision, unconstitutionally discriminates against professional gamblers (and IRS apparently concedes Shiraz’s pro status, even though he’s a CPA with a tax prep practice), now that wagering on the ponies and playing poker for money are legal almost everywhere.

No go, says Judge Halpern. The argument “borders of the frivolous”, because other cases have held that there is a rational basis for Congress to distinguish between gambling for money and other trades or businesses, although I can’t see the difference in, for example, speculating on futures.

Shiraz also wants to deduct his share of the takeout. Now we horseplayers know the track (or the racing authority) takes a piece of the pool of money wagered on any race (whether at the track or via telephone or other legal means) for upkeep, maintenance, education, fees, and to pay a guaranteed minimum on every winning ticket sold, even if that would cost more than what remained in the pool. It’s called the “takeout”.

Shiraz says that’s like withholding on wages, but the obligation to pay the takeout is imposed on the track, not Shiraz. It doesn’t increase his winnings or add to his losings.

Judge Halpern has a lengthy explanation of the takeout and pari-mutuel betting in general, and that’s good for beginners, but for those of us who have torn up a few losing tickets, we know it already.

Shiraz gets the Section 6662(a) substantial understatement chop, although he claims he didn’t know about the Section 165(d) limitation.

But that’s a real nonstarter: “Moreover, petitioner, a certified public accountant with an active tax preparation practice, and admittedly aware of section 165 governing the deductibility of losses, should have been aware of the section 165(d) limitation on net gambling losses. Also, as a professional gambler who regularly bets on horse races and understands parimutuel betting, he must have known that takeout represents the track’s share of the betting pool and that the expenditures therefrom satisfy obligations of the track, not the bettors.” 142 T. C. 8, at pp. 22-23.

Shiraz, you can beat a race, but you can’t beat the races.

Thus Judge Buch, quoting John Keats (Book I of Endymion, for those who slept through freshman English Lit), puts paid to another Section 170(h)(2)(C) and (h)(5)(A) conservation easement claim, in Patrick J. Wachter and Louise M. Wachter, 142 T. C. 7, filed 3/11/14.

IRS wants to fight over contemporaneous acknowledgment and no-goods-or-services, but those involves facts and so are off the summary judgment table.

But the perpetual easement issue is front-and-center, and the Clan Wachter is up against the laws of the great State of North Dakota, the only US State (to my knowledge or Judge Buch’s) that caps the duration of easements. North Dakota, in a fight with the Fed’ral Guvmint over migratory bird sanctuaries, passed a law restricting easements to 99 years. The Supremes decided that the law could not affect Federal deals already in the works, but any made thereafter would be subject to the law.

The Wachters, making their deal thereafter, claimed that the 99-year out was so remote as to be negligible, a song we’ve heard before; see my blogpost “Money-Back Guarantee”, 6/24/13.

Well, it isn’t that remote.

Judge Buch: “As used in the regulation and as interpreted by our caselaw, the event is not remote. On the dates of the donations it was not only possible, it was inevitable that [the donee of the easements] would be divested of its interests in the easements by operation of North Dakota law. Therefore, the easements were not restrictions granted in perpetuity and were thus not qualified conservation contributions.” 142 T. C. 7, at p. 16 (Footnote omitted).

The omitted footnote mentions the application of the 99-year-lease rule in case of Section 1031 like-kind exchanges, but here the issue is not whether property is like anything else, and there’s no express statutory requirement for perpetuity in Section 1031.

So while the residual value of the burdened properties may be minimal for 99 years, that doesn’t change things; it’s not value. It’s remoteness.

“Remote” means that a rational businessperson wouldn’t consider the event as at all probable. And though the word “remote” might mean “distant” in other contexts, here it means “virtually impossible”.

But here it’s not even improbable, it’s certain. The Wachters’ easements won’t “alway” be with us.

 And their noncash deduction won’t be with them at all.

We all remember that Rule 161 reconsideration motions are not arenas for rehashing failed arguments or coming up with new ones; as Judge Dawson reminds us, “Motions for reconsideration are generally not granted absent a showing of unusual circumstances or substantial error, e.g., mistake, inadvertence, surprise, inexcusable neglect, newly discovered evidence, fraud, or other reason justifying relief.” Order, at pp. 1-2.

And the Order I’m quoting is brought on by our old friends Pilgrim’s Pride Corporation Successor in Interest to Pilgrim’s Pride Corporation of Georgia F/K/A Gold Kist, Inc., et al, Docket No. 12089-10, filed 3/10/14.

The Pilgrims and their several predecessor and et als featured in my blogpost “Just Walk Away?”, 12/11/13, which detailed how the attempted abandonment of some stock, that Pilgrims claimed gave them an ordinary loss, but which IRS said was a capital loss, set up Judge Dawson, wild-carding in Section 1234A, the anti-straddle provision, to uphold IRS.

So why a four-page Order denying reconsideration? Well, Judge Dawson is thorough.

First, Pilgrims want to limit Section 1234A to “derivative” contracts, but that means rewriting Section 1234A, and Judge Dawson won’t go there.

Second, Judge Dawson’s treatment of Section 1234A(1) does not make Section 1234A(2) superfluous, because “(A)bsent section 1234A(2), a termination by offset of a right or obligation with respect to a section 1256 contract might not be considered a ‘termination’ for purposes of section 1234A. Section 1234A(2) ensures that gain or loss from a deemed termination by offset will be treated as gain or loss from the sale of a capital asset and, therefore, is not superfluous.” Order, at p. 2.

Clear? Thought not.

And the Pilgrims conflate Section 165(f) and 165(g). Abandonment does not equal worthlessness. One can abandon property that has some residual value, or even a lot of value. Worthless means worthless. And worth or worthlessness of abandoned property is determined at moment of abandonment, not at some later time when the property might have become worthless.

“Finally, our holding regarding section 1234A has no application to the termination of rights or obligations with respect to property resulting from a gift of the property. Congress has consistently treated a gift as a nontaxable event, consistent with the donee’s carryover of the donor’s basis pursuant to section 1015(a).” Order, at p. 3.

If you give a gift to a qualifying organization, you get a charitable deduction pursuant to Section 170, not a loss.

No new evidence or error of law, so the Pilgrims’ feet must beat their “stern impassioned stress” out of Tax Court.

Footnote to the foregoing- USCA5 reversed Tax Court by decision 2/25/15. Briefly, “Because §1234(A)(1) only applies to the termination of contractual or derivative rights, and not the the abandonment of capital assets, we REVERSE the judgment of the Tax Court and RENDER judgment in favor of Pilgrim’s Pride.” Docket No. 14-60295, filed 2/25/15, at p. 1. Thanks to Wm. Funk, Esq., for drawing this decision to my attention.

Trying a variation on an old gambit, Larry Williams & Dora Williams, Docket No. 23883-12, filed 3/10/14, run aground on the same reef that sank two of the subjects of my previous blogposts, “Passive Aggressive”, 8/8/12, and “Passive Aggressive – Part Deux”, 11/13/12.

And STJ Armen, The Judge With a Heart, cites both cases that gave rise to those blogposts in this designated hitter.

Rob has a Sub S that owns real estate, which the Sub S rents to Rob’s C Corp. No dispute that the C Corp is an active business in which Rob materially participates, thus invoking Reg. Sec. 1.469-2(f)(6), the so-called “self-rental rule”, which activates the famously passive rental of real estate, thereby torpedoing Rob’s passive losses.

Rob’s argument? Sub S corporations aren’t subject to Section 469, the parent of the passive loss rules.

STJ Armen: “Although the Court agrees that section 469(a) does not literally apply to S corporations, which generally are not taxpayers, section 469(a) does apply to petitioners (as taxpayers who are individuals) and serves to disallow their passive activity loss. See sec. 469(a)(2), describing those persons who, as taxpayers, are subject to the general disallowance rule of sec. 469(a)(1).

“For purposes of section 469, a taxpayer’s ‘activities’ include those activities that the taxpayer conducts through an S corporation. Sec. 1.469-4(a), Income Tax Regs.; see Dirico v. Commissioner,139 T.C. 396, 402 (2012). Generally, the passive or nonpassive character of each item of gross income and deduction allocated to the taxpayer from an S corporation is determined by reference to the taxpayer’s participation in the activity. Sec. 1.469-2T(e)(1), Temporary Income Tax Regs., 53 Fed. Reg. 5718 (Feb 25, 1988); see also Dunn v. Commissioner,T.C. Memo. 2010-198, 2010 WL 3564725 at *11 n.21. Additionally, the selfrental rule of section 1.469-2(f)(6), Income Tax Regs., applies to an S corporation’s rental income passed through to the taxpayer from property rented to a C corporation and used in the C corporation’s business if the taxpayer materially participates in the business activity of the C corporation. Veriha v. Commissioner, 139 T.C. 45 (2012). Order, at p. 4.

Alert readers will recall that Veriha was the star of “Passive Aggressive”, op. cit., and Dirico was the star of “Passive Aggressive – Part Deux”, op. cit.

Interesting from a procedural point of view, this Order denies Rob’s motion for summary judgment, which STJ Armen recharacterizes as a motion for partial summary judgment. So maybe there’s more to follow here.

I’ve headlined two distinct blogposts as “Money-Back Guarantee”, 5/17/13 and 6/24/13. Each of those did provide for money back, but today’s blogpost, a designated hitter from STJ Daniel A. (“Yuda”) Guy, is anything but a guarantee that you’ll get your money back in Tax Court.

Tax Court’s labyrinthine jurisdiction, supposed to provide quick-and-cheap dispute resolution, instead provides quick-and-cheap dismissals. Here’s Reaz Ahmed & Ayesha Khatun, Docket No. 7292-13S, filed 3/7/14, getting the boot.

Reaz and Ayesha never got a SNOD or a NOD, so IRS moves for summary judgment, and wins, of course.

“The notice of deficiency has been described as ‘the taxpayer’s ticket to the Tax Court’ because without it there can be no prepayment judicial review by this Court of the deficiency determined by the Commissioner.

“The record reflects that (1) respondent did not issue a notice of deficiency or other notice of determination to petitioners for the taxable year …, and (2) petitioners are in fact attempting to prosecute a refund action. It is well settled that a letter disallowing a claim for a credit or refund does not constitute a notice of deficiency under I.R.C. section 6212. It follows that we lack jurisdiction in this case.” Order, at pp. 1-2. (Citations omitted).

Maybe the Tax Court website needs to explain this to taxpayers.

But another no win, this time for Michael S. Mountanos, 2014 T. C. Memo. 38, filed 3/6/14. Mike was previously hit with a 40% substantial undervaluation on his would-be conservation easement. He didn’t stipulate that the purported grant was a sham, but instead fought it out in Tax Court–and lost. Tax Court calls that opinion Mountanos I.

But Mike is persistent. He wants to fight over the carryover charitable deduction he didn’t get, which was denied based on the overvaluation. “Petitioner now asks us, in a calculated maneuver to avoid the accuracy-related penalty, to address the alternative grounds respondent raised for disallowing the carryover deductions. We will deny his motions.” 2014 T. C. Memo. 38, at p. 2.

You may remember our old friend Keller. No? See my blogpost “It’s A Sham”, 9/25/12. If a deduction would have been disallowed based on taxpayer’s confession it was all a sham, whether or not overvaluation was in play, then Ninth Circuit said there was no overvaluation.

But in the meantime, the Supremes weighed in with “…United States v. Woods, 571 U.S.__, 134 S. Ct. 557 (2013). The Court held that the Commissioner’s determination that a partnership was a sham is not independent from a taxpayer’s overstatement of basis for purposes of the gross valuation misstatement penalty.” 2014 T. C. Memo. 38, at p. 6, Footnote 2.

Besides, Keller stipulated his deal was a sham. That kept him from contesting whether it was or wasn’t. Mike fought it all the way to a finish. He had his shot to prove his deal was valid and the valuation he claimed was real. He lost.

Judge Kroupa isn’t giving him a second shot at avoiding the 40% chop by arguing alternative grounds.

“Petitioner now attempts to lose his redetermination argument on a different ground so as to avoid liability for our applying the gross valuation misstatement penalty. Thus, he is attempting to take two bites at the same apple. The Court of Appeals in Keller noted that a taxpayer’s concession had significant consequences because it meant that the taxpayer was no longer able to argue the merits of his deficiencies in the Tax Court. Here, petitioner is attempting to gain advantage by both arguing the merits of his deficiencies in the Tax Court and then later seeking to lose his redetermination argument on a non-valuation ground to avoid the gross valuation misstatement penalty.” 2014 T. C. Memo. 38, at pp. 8-9, Footnote 4 (Citation omitted).

Mike is nothing if not inventive. He appealed to Ninth Circuit, so he wants Tax Court to consider his alternative grounds in case Ninth Circuit remands.

But that would be an advisory opinion, as it’s conjectural that Ninth Circuit would remand, and anyway Mountanos I disposed of the whole 40% chop issue.

“We held dispositively in Mountanos I that petitioner failed to prove that the conservation easement had value. Our addressing the alternative grounds that respondent raised would have no impact, then or now, on our disposing of this case. The alternative grounds that respondent raised for disallowing the carryover deductions are therefore moot. Accordingly, we decline the invitation to issue an advisory opinion.” 2014 T. C. Memo. 38, at pp. 10-11. (Citations omitted).

Mike hasn’t shown unusual circumstances or substantial error, and Mike’s Rule 162 arguments are the same as his (losing) Rule 161 arguments.

So Mike loses; but it was a good try.

No surprises while The Judge Who Writes Like a Human Being, a/k/a The Great Dissenter (and implacable foe of the partitive genitive) Mark V. Holmes is on the case.

So it’s no-go for Robin A. Murphy, Docket No. 2955-13, filed 3/6/14.

Robin wants to amend her petition at the calendar call. Judge Holmes gives her an off-the-bencher turn-down, but explains why.

Robin and IRS agreed on every issue but two. Robin claims at calendar call that she was an IC, not at EE, for one of the years at issue, and that she did not authorize the filing of the 1040 for another year.

The latter contention, of course, would make her a nonfiler, with all the attendant additions to tax, interest and penalties appertaining thereto. Judge Holmes isn’t sure Robin wants that, but anyway IRS would have to do a lot of discovery to find out what Robin did mean by that, and the time for discovery is over.

As to the IC-vs-EE contention, “(M)oreover, the government would clearly be disadvantaged by this change in the theory of Ms. Murphy’s case. Changing one’s status from independent contractor to employee or vice versa involves an examination of a whole list of factors.

“It’s a multifactor test that varies from circuit to circuit and would have required the government, for instance, to come up with witnesses who know exactly what she did or what the conditions of her employment were during the year in question. They would have had to look at any employee manuals and other conditions of employment, and they simply had, government simply had, no opportunity to do any of this in the short period of time that Ms. Murphy gave them.” Order, at pp. 6-7.

Robin does have an entry in the Taishoff “excuses” prize-less sweepstakes.

“As to the reason that Ms. Murphy offered, she did describe the emotional trauma that she’s been suffering recently in the last couple of years where an unidentified stalker has affected her life, as well as a terrible roommate situation in which the roommate, a self-proclaimed witch, put black magic curses on her and left voodoo objects in her room. I want to be careful that we are not saying that she was asserting that she was herself ensorcelled here, but only that she had a very bad roommate situation that caused her emotional trauma and ultimately led to seek an order of protection to enable her to move from her apartment.” Order, at p. 6.

Not bad, Robin. But Judge Holmes, even though Robin actually got him to use the partitive genitive in the preceding paragraph, isn’t buying. Judge Holmes wasn’t that ensorcelled. So he immediately relapses into his old, anti-partitive-genitive, ways.

“But all that happened some time ago and doesn’t really suffice as a good reason for not bringing this very different theory of the case to the Court’s attention until the calendar call, or to the government’s attention, apparently, at the earliest, a couple weeks ago.” Order, at p. 6.

A “couple of years”, but a “couple weeks”? C’mon, Judge.

Anyway, Robin is stuck with her case as previously presented.

Takeaway- Rule 41 is liberal, but not that liberal. If you’re changing theories so as to require different items of proof, rather than just a different view of the law, you had better move fast.